Abstract
The history of the oil industry has been dominated by the early development of the US market. From 1860 to 1953, the US share in world oil production was more than 50%, with the exception of the period 1897 to 19031. The rapid expansion of the US market must be seen within the context of the availability of oil, legislation, the prevailing business environment and the technological advances of the US engineering industries at the beginning of the twentieth century, which stimulated demand for liquid rather than solid fuels.2 Although the oil industry was also developed in other regions of the world, the expansion of the.industry was limited by the absence of nearby consumer markets, the competition of domestic produced solid fuels, and transportation constraints.
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References
Petroleum Facts and Figures, 1971 edition, American Petroleum Institute, p.556 and 557. The share of the US in this period was fluctuating between 40 and 50%.
See Chapter two.
Calculations in this chapter are based on various issues of the British Petroleum Statistical Review of World Energy (BPSR).
The average annual growth of oil production was 10.2% between 1950 and 1960, and 11.7% between 1960 and 1970.
In Chapter 2, the relationship between economic growth and oil consumption was discussed. Up to 1973, the U.S. oil/GNP ratio was increasing. Diminishing growth of GNP will, therefore, also affect oil consumption and production. Growth of real GNP in the United States decreased substantially from 4.2% in 1968 to 2.4% in 1969, -0.3 in 1970 and 2.8% in 1971. The inflationary economic policy of the United States at the end of the 1960s and the subsequent emergence of a fundamental balance of payments deficit had put increased pressure on the value of the dollar. The economic problems of the United States were passed on to other economies through the Bretton Woods exchange rate system. In this period it became obvious that the exchange rate of the dollar, also important for the oil exporting countries, was grossly over-valued. The resultant confidence crisis in the exchange rate system led to a major monetary crisis. In 1971, the inconvertibility of the dollar in gold became a fact and the dollar devaluated around 7.5% in relation to the OECD countries’ currencies. The period of economic uncertainty had also affected the performance of other economies. At the end of the 1960s, growth of real GNP/GDP had slowed down in the OECD countries (1968: 5.4%; 1969: 4.7%; 1970: 2.7%; 1971: 3.5%; 1972: 5.1%).
See Chapter 1, section 4.
Oil consumption expanded rapidly from 1950 to 1973, 95.6% between 1950 and 1960, 115% in the period 1960–1970 and 32.5% between 1970 and 1973.
OECD Economic Outlook, 43, June 1988, Table R 1, p. 170.
In the Centrally Planned Economies, the oil price increase of 1973/1974 was not immediately passed on to the consumers. Among the CMEA countries, prices were determined for a five year period and based on the average world market prices of the previous five years. P. Boot, Economische stagnatie in Oost-Europa, in: Internationale Spectator, Oktober 1983, xxxvii-10, p. 620.
Consumption increased only 32.5% between 1970 and 1980.
Real GNP/GDP diminished to 1.1% in 1980, 1.6 in 1981, -0.5 in 1982 and recovered from 1984 (4.9%) onwards. In 1987, real growth of GNP/GDP in the OECD area was 3.1%. OECD Economic Outlook, 43, June 1988, Table R 1, p. 170.
Between 1950 and 1960, production increased 85.4% and 114.1% between 1960 and 1970.
OPEC production declined from 30,988 b/d in 1973 to 27,445 b/d in 1980, a decline of 3,543 b/d. CPE production increased 5,165 b/d in the same period (9,645 b/d in 1973 to 14,810 b/d in 1980. See Figure 3.16 and 3. 18.
On the domestic side, oil is the swing fuel with flexibility of delivery, though Soviet planners have no flexibility of supply through further expansion of production, which is subject to severe physical and economic constraints. The flexibility of supply of Soviet oil exports thus reflects flexibility in the allocation of delivery; and the surge of oil exports to the hard currency area in the early 1980s, while production remained stagnant, is largely explained by the diversion of oil deliveries to the West at the expense of the CMEA countries and domestic consumers.“ M. Chadwick, D. Long, M. Nissanke, Soviet Oil Exports; Trade Adjustments, Refining Constraints and Market Behaviour, Oxford Institute for Energy Studies/Oxford University Press, 1987, p. 85.
See Chapter 5.
Between 1950 and 1960, consumption increased 84.2%, 109% between 1960 and 1970 and 21.4% between 1970 and 1973.
In the period 1970–1973, oil production in the CPE’s increased 22.9% (from 7,845 thousand b/d to 9,645 thousand b/d) and oil consumption 28.4% (from 6,805 thousand b/d to 8,735 thousand b/d).
OPEC’s production cuts are reflected more prominently in the figures of the world excluding CPE’s than in total world production. The production cuts by OPEC were partly substituted by increased production by the USSR.
Consumer prices increased at an average annual rate of 6.6% in the period 1966–1975 and 8.5% in the period 1975–1984 for the OECD countries. In Japan consumer prices increased at an average annual rate in these periods of 8.8% and 4.9% respectively, in the United States 5.8% and 7.6% respectively and in the European OECD countries 7.1% and 10.0% respectively. OECD Economic Outlook, 43, June 1988, table 22, p. 49.
OECD consumption decreased 7.6% in 1980, 5.5% in 1981, 5.3% in 1982 and 1.7% in 1983. BPSR 1989, p. 9–10.
OECD consumption increased 3.1% in 1986, 1.1% in 1987 and 2.9% in 1988. BPSR 1989, p. 9–10.
Oil consumption in million tonnes oil equivalent per US$ 100,000 of GDP at 1975 prices and exchange rates. G. Koopmann, K. Matthies and B. Reszat, Oil and the International Economy, lessons from two oil price shocks, Transaction Publishers, New Brunswick/Oxford, 1989, p. 36.
Oil and the International Economy, lessons from two oil price shocks, Transaction Publishers, New Brunswick/Oxford, 1989, p. 36.
G.W. Hoffman, The European Energy Challenge; East and West, Duke Press Policy Studies, Durham, N.C., 1985, p. xxiv, note 3.
Ibid., p. 17.
Nevertheless, the price increases for Soviet oil in the past three years have been greater than could have been foreseen from the principle of a moving five-year range. The mode of calculation has been changed since 1980; since then prices seem to have been calculated according to average world market prices for the previous three years, rather than five. In the past three years this has led to distinctly steeper price rises. (…) Thus the following hypothesis may be proposed: The change in the price mechanism forced the smaller CMEA countries to cut back their oil imports from the USSR. If the three-year average is maintained, clearing prices will nearly be 10 per cent higher than the world market price by 1983. Price declines are to be expected for 1985 and 1986.“ J. Bethkenhagen, The impact of energy on East-West Trade: retrospects and prospects, in: C.T. Saunders (ed.), East-West Trade and Finance in the World Economy, a new look for the 1980s, Macmillan, London, 1985, p. 186/187.
From 1980 to 1985, apparent consumption of oil in the 6 Eastern European CMEA countries declined from 1930.4 thousand b/d to 1742.6 thousand b/d, while imports slightly decreased. PlanEcon, Soviet and East European Energy Databank, Volume two, March 1986, Washington, D.C., p. x-1.
Primary energy consumption increased, 4.1% in the market economies and 3% in the CPE’s. In the OECD countries oil consumption increased 2.9% in 1988/1987, while primary energy consumption increased 3.a%.
In 1960 and 1961, production was just in deficit over consumption, a mere 15.000 b/d. In 1962 there was a surplus of 50.000 b/d, in 1963 a deficit of 170.000 b/d, in 1964 a deficit of 55.000 b/d, in 1965 a more substantial deficit of 360.000 b/d, in 1966 a small deficit of 55.000 b/d and in 1967 production was in surplus to consumption again (170.000 b/d).
See Chapter 4.
Stocks increased from 95 days in 1985 to 99.1 in 1986 and 98.3 in 1987. OECD Economic Outlook, 43, June 1988, p. 157.
T. Morgan, Hurdles along the path to $18 oil, in: OPEC Bulletin, March 1989, graph 4, p. 7.
CPE oil exports increased from 2,005 thousand b/d in 1980 to 3,802 thousand b/d in 1988. Between 1980 and 1984 exports grew 42.9% and 32.7% between 1984 and 1988. In rate of change in 1988/1987 alone was 30.7%. BPSR 1989.
The world market can not sustain a deficit of production over consumption for very long. The imbalance can be explained by stocking/de-stocking, refinery gains, unaccounted for stocks and the inability to measure demand and supply precisely.
Growth of Soviet oil exports to the OECD countries increased rapidly in the period 1965–1968 and was followed by a period of more modest export growth. Between 1962 and 1970 the volume of Soviet oil exports to the OECD increased from 14.3 million tonnes to 38.3 million tonnes. M. Chadwick, D. Long and M. Nissanke, op.cit., p. 39.
See Chapter 5.
T. Morgan, op.cit., p.6, Graph 2.
See Table 2.6.
R. Lefeber and J.G. van der Linde, op.cit., p 452–458.
Growth of West European consumption was in 1950–1960: 169.2%; 1960–1970: 257.4%; and 1970–1973: 19.1%.
In 1970, this share was 30.9%, declining to 28.5% in 1975, to 26.7% in 1980 and to 25.9% in 1985. In 1986 and 1987, the share remained stagnant.
Between 1979 and 1985, consumption decreased 16.9%.
F. Niering, Oil Policy after Reagan, in: Petroleum Economist, February 1990, p. 59.
The share of oil in US primary energy consumption was 41.8% in 1970, increased to 44.7% in 1975, declined to 43.1% in 1980, to 40% in 1985 and increased slightly again to 40.7% in 1988.
See section 8.
Demand declined 11.2% between 1973 to 1975.
Western Europe’s share in world oil consumption increased to 12.9% in 1955, to 18.8% in 1960, to 25% in 1965, to 26.9% in 1970.
R. Lefeber and J.G. van der Linde, op.cit., p.452–460.
Per capita energy consumption in the US was also averaging above most industrialized countries’ per capita energy consumption. In 1988 per capita energy consumption in Western Europe (3.2 tonnes oil equivalent; t.o.e.) and Japan (3.3 t.o.e) was only half that of the US (8.0 t.o.e.). Compared to per capita consumption in 1978, Western Europe stabilized, the US decreased and Japan increased its per capita consumption’ Per capita energy consumption in the OECD countries was, however, still much higher than in LDCs and CPEs. In 1988, energy consumption per capita (in tonnes oil equivalent) in the LDC’s was 0.5 t.o.e. and 1.6 t.o.e. in the CPEs. 52
The share of imports in US oil consumption increased until 1977 (See Table 2.8) but declined from 1978 until 1985, when domestic production, in particular from Alaska, increased. In 1985, US production started to decline and the shortfall had to be made up from imports. In 1989, the total import volume was 43.9% of overall US demand and is expected to increase still.s3 West European oil consumption was largely covered by imports until 1982. However, the North Sea oil production made the United Kingdom and Norway reasonably large net-exporters, while the majority of the West European countries remained nearly completely dependent on imports for oil consumption. In 1988/1987 West European imports increased 15.2%, bringing the share of Western Europe in world oil imports up to 33.2%, compared to a US share in world oil imports of 24.7% and a Japanese share of 16.1%. This left only a share of 26% of world oil imports for the remaining importing countries in the world.
In 1957, Japan accounted for 1.8% of world oil consumption. The rapid economic development of Japan is expressed in the growth of oil consumption (See Figure 3.4). Oil consumption in Japan expanded rapidly between 1960 to 1973. Like in Western Europe and the US, consumption contracted between 1973 and 1975 (8.1%), but increased again from 1976 to 1979 (9.3%). From the peak consumption level in 1979 (5,485 thousand b/d), consumption, as in the US and Western Europe, decreased in the period 1979–1985 (20.1%) and increased after the price collapse (8.7% in the period 1985–1988). Between 1960 and 1970 Japan’s share of world oil consumption had increased from 2.7% to 8.6%, peaking in 1973 at 9.6% and decreasing slowly after that to 7.3% in 1988. Oil consumption in Japan is almost totally dependent on imports.
In 1982, oil demand per capita in the United States was 21.48 barrels oil equivalent (b.o.e.), compared to 10.02 b.o.e in Western Europe, 12.67 b.o.e. in Japan, 3.26 b.o.e. in the CPE’s and 1.55 b.o.e. in the LDC’s. The average oil demand per capita in 1982 in the world was 4.4 b.o.e. and 14.22 in the OECD. S. Sinclair, op.cit., p.35.
BPSR 1989, p. 35. sz BPSR 1989, p. 35. S3 F. Niering, op.cit., p. 60.
Asked what the effect of government intervention in the refining industry had been, Harold D. Hoopman, President of Marathon Oil, answered: “Government is allocating crude to inefficient plants, plus a subsidy to keep them alive. As a result, we’re probably wasting one and a quarter million barrels of oil a day.” Orin Akins, chairman of Ashland Oil, a company that sold off its crude oil producing properties, answered to the same question:“ (…) that an assured supply of crude is no longer essential, because in periods of shortage government will step in and allocate it.” Fortune, January 12, 1981, p. 39.
W. Molle, Oil refineries and petrochemical industries: moving into maturity, in: H.W. de Jong (ed.), The structure of European Industry, second edition, Kluwer Academic Publishers, Dordrecht, 1988, p. 52.
J. Boers, G. Eisenloeffel and C. van der Linde, op.cit., p.190–195.
BPSR 1989, p.34.
A.R. Khan, The prospects for gas in developing countries, in: Robert Mabro (ed.), Natural Gas, an international perspective, proceedings of the Oxford Energy Seminar, Oxford Institute for Energy Studies, Oxford, 1986, p. 86–87.
The economies of scale are very large in transport and transport enjoys decreasing per unit costs. The possibilities of transporting gas by means other than pipelines to extend the marketability of the gas are constrained by the costs incurred by liquefaction. In order to transport LNG, the gas must be cooled to -162° C; the LNG must then be carried by specialized transport (ship or truck) to the receiving country in a re-
A. Hamilton, op.cit., p.93.
Ibid., p.94.
The Organization of Arab Petroleum Exporting Countries announced monthly production cuts for the duration of the Israeli occupation of the Westbank, Gaza strip and Golan Heights in 1973. The Unites States, the Netherlands and Portugal were embargoed for political reasons. The international oil companies diverted oil from other countries to these countries. Although no physical shortages occurred, the diversion of oil trade and the stock-building by consumer countries did put the market under pressure.
See Chapter 1.
W. Bronner, R. Falk, P. Maaskola, H. Nazuri, M. Preuss, Ölkrise und Arabische Öllander, Marxismus aktuell, Frankfurt am Main, 1980, p. 46.
G. Bird, World Finance and Adjustment, an agenda for reform, Macmillan, Basingstoke, 1985, p.24. Financial Times, May 7, 1985, p. 6.
G. Bird, World Finance and Adjustment, an agenda for reform, Macmillan, Basingstoke, 1985, p.24. Financial Times, May 7, 1985, p. 6.
Real oil price: nominal price of Arabian Light deflated by the OECD export price index.
G. Bird, World Finance and Adjustment, an agenda for reform, Macmillan, Basingstoke, 1985, p.24. Financial Times, May 7, 1985, p. 6.
A Real prices are annual average nominal prices in dollars, deflated by the annual change in the manufacturing unit value index ( MUV), a measure of the price of industrial country exports to developing countries. World Bank Development Report, 1988, p. 25.
World crude oil trade expanded 90.9% in the period 1967–1973, 3.4% in the period 1973–1979, contracted 25.7% in the period 1979–1986 and increased 4.2% between 1986 and 1988.
The combined imports of the United States, Western Europe and Japan increased in the period 1967–1973 by 91.2%, decreased 0.2% between 1973 and 1979, 29.7% in the period 1979–1986 and increased 6.4% between 1986 and 1988.
Basic Petroleum Data Book, Petroleum Industry Statistics, volume X, number 1, January 1990, API, Washington D.C., Section X, Table 5.
Basic Petroleum Data Book, Petroleum Industry Statistics, volume X, number 1, January 1990, API, Washington D.C., Section X, Table 5.
R. Lefeber and J.G. van der Linde, op.cit., p.452–463.
R. Lefeber and J.G. van der Linde, op.cit., p.452–463.
R. Lefeber and J.G. van der Linde, op.cit., p.452–463.
R. Lefeber and J.G. van der Linde, op.cit., p.452–463.
R. Lefeber and J.G. van der Linde, op.cit., p.452–463.
See Chapter 4.
Proved oil reserves are generally taken to be those quantities which geological and engineering information indicate with reasonable certainty can be recovered in the future from known reservoirs under existing economic and operating conditions. BPSR.
Reserves/production ratio (r/p): if the reserves remaining at the end of any year are divided by the production in that year, the result is the length of time that those remaining reserves would last if production were to be continued at the then current level. BPSR 1990.
Reserves/production ratio (r/p): if the reserves remaining at the end of any year are divided by the production in that year, the result is the length of time that those remaining reserves would last if production were to be continued at the then current level. BPSR 1990.
Reserves/production ratio (r/p): if the reserves remaining at the end of any year are divided by the production in that year, the result is the length of time that those remaining reserves would last if production were to be continued at the then current level. BPSR 1990.
OPEC Annual Statistical Bulletin 1987, p.4.
In 1985, Gabon, Indonesia, Iraq and Saudi Arabia had current account deficits. In 1986, Algeria, Ecuador, Iran, Libya, Qatar and Venezuela also suffered deficits. In 1986, GNP at current market prices (in million US dollars) decreased in 12 of the member states. Only Kuwait’s GNP increased.
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van der Linde, C. (1991). International Market Developments. In: Dynamic International Oil Markets. Studies in Industrial Organization, vol 15. Springer, Dordrecht. https://doi.org/10.1007/978-94-015-7913-1_4
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