Middle East remains one step ahead

Date: 20/10/05

Any chart or map produced in the last 20 years showing the world's proven oil reserves tells a familiar tale. The Middle East is platforms and pumping stations above any other region as the biggest repository of oil. Even when lumped together, Europe and Eurasia, Africa and the Americas are dwarfed by comparison.

For gas the Middle East is still at the top, although Europe and Eurasia, led by Russia, come a close second.

The EU's sources of energy follow a similar pattern. Much of Europe's gas comes from Russia, much of her oil from the Middle East.

But in its drive for energy security the EU says it wants to diversify its source of imports.

With the Middle East continuously unstable and many parts of Europe facing an over-reliance on Russian gas, a European Commission report published in June this year said that "links with third countries urgently need to be strengthened".

Although Russia still featured prominently, the report recommended stronger ties with Algeria, Egypt, Libya, Iran and Syria, identified as new tactical targets for improved energy trade.

Through the Baku-Tbilissi-Ceyhan oil pipeline the EU also hopes to tap Caspian sources and reduce its dependence on oil from the Middle East and Russia.

But with imports expected to account for 70% of the EU's energy needs by 2020-30, up from 50% today, the problem is acute.

So should Europe be looking beyond trad-itional sources to a more global approach?

With roughly 40% of the world's oil originating outside the Middle East and 65% of proved gas reserves outside Europe and Eurasia, opportunities for diversification exist.

Faced with rapid industrialisation and urbanisation, Chinese oil executives for the state-owned firm Sinopec have been busily criss-crossing the globe securing energy contacts.

Although around 45% of China's oil imports come from the Middle East, Latin America, Russia and Africa have also been targeted.

In one region, sub-Saharan Africa, US, Indian, Chinese, as well as Japanese and South Korean firms are leading the way, according to Keith Myers, an associate fellow at Chatham House's Africa Programme.

So far, he says, Europe has shown limited interest in sub-Saharan Africa as a way of shaking up its import mix.

"I think that Europe is still more focused on the Middle East. Northern Europe is between Russia and Norway and in the south between Algeria and Egypt," Myers says. "The sort of volumes [found in sub-Saharan Africa] are quite small in comparison, it looks like being at the margins for quite a while," he adds.

The reason in part, Myers says, is a different political and economic equation. "China has less confidence that the market will provide for its needs." For Europe, he adds, the dependency on Russian and Middle Eastern sources is not yet painful enough to justify looking elsewhere.

But changes may be on the way. In the gas sector, liquefied natural gas is rapidly removing the dependence on pipeline transported gas as it becomes price competitive.

Yet according to Myers this may not bring that great a benefit to the EU.

"There are Japanese companies investing in sub-Saharan Africa now that are doing so with a view to exporting the US," he points out.

And there is little sign of an intensive dialogue on energy with Latin America and Africa, similar to the dialogue that the EU engages in with Russia to help energy firms operate.

According to Howard Chase, director of European governmental affairs for BP, such dialogue is crucial.

"The EU-Russia dialogue provides an important framework for major commercial investments," he says.

"It is now in its sixth year. It is well established and is seen as important on both sides. It helps companies get on."

Article takes a look at the dominant position of the Middle East in the global production of mineral oil and the consequences for Europe.