11.2.3: Analyze changing patterns of oil trade and demand.

Petroleum Challenges

Maintaining a consistent supply of petroleum has been especially challenging in recent years. Most of the world’s petroleum is supplied by countries in Southwest Asia & North Africa and Central Asia, two regions strongly impacted by religious, ethnic, and political conflicts discussed in Chapters 6, 7 and 8. On the other hand, developed countries in North America and Europe demand disproportionately large shares of energy.

World Oil Trade

Developed countries supply a large share of the world’s fossil fuels, but they demand more energy than they produce, so they must import fossil fuels, especially petroleum, from developing countries. The largest flows of oil are from Russia to Europe and from Canada to the United States. The United States and Europe import more than half their petroleum, and Japan imports more than 90 percent.

Petroleum Trade

The largest flows of petroleum are from Latin America to the United States and from Southwest Asia to Europe and elsewhere in Asia.

Pause & Reflect 11.2.3

Based on Figure 11-35, why are government policies in China and Europe strongly encouraging the use of electric cars?

Several developing countries possessing substantial petroleum reserves, primarily in Southwest Asia & North Africa, created the Organization of the Petroleum Exporting Countries (OPEC) in 1960. OPEC was originally formed to enable oil-rich countries to gain more control over their resource. U.S. and European transnational companies, which had originally explored and exploited the oil fields, were selling the petroleum at low prices to consumers in developed countries and keeping most of the profits. Countries possessing the oil reserves nationalized or more tightly controlled the fields, and prices were set by governments rather than by petroleum companies.

Opec Petroleum Production

Oil drilling platform in Nigeria, an OPEC member since 1971.

U.S. Oil Supply & Demand

The United States produced more petroleum than it consumed during the first half of the twentieth century. Beginning in the 1950s, the handful of large transnational companies then in control of international petroleum distribution determined that extracting petroleum in the United States was more expensive than importing it from Southwest and Central Asia. As a result, the United States became a net importer of petroleum.

U.S. Petroleum Consumption, Production, & Imports

U.S. production has remained relatively constant since the 1960s. Higher consumption has been met by increasing imports. As a result, an increasing share of petroleum consumed in the United States has been imported.

The countries from which the United States imports petroleum have changed since 1973. Canada supplies a much higher share than in the past. With U.S. oil consumption continuing to increase, imports from Canada are arriving through pipelines. Construction of the Keystone and Dakota Access pipelines has been controversial, especially because of fears of environmentally damaging leaks.

U.S. Petroleum Sources

The United States imports a higher percentage of petroleum now (a) than in the 1970s (b). However, the sources have changed. The increase has come primarily from other countries in the Western Hemisphere.

Potential Reserves of Petroleum

Some fossil fuel deposits have not yet been discovered. The supply in deposits that are undiscovered but thought to exist is a potential reserve. When a potential reserve is actually discovered, it is reclassified as a proven reserve.

Potential reserves can be converted to proven reserves in two ways:

• Fields yet to be developed. When it was first exploited, petroleum “gushed” from wells drilled into rock layers saturated with it. Coal was quarried in open pits. But now extraction is more difficult. Removing the last supplies from a proven field is comparable to wringing out a soaked towel. It is easy to quickly remove the main volume of water, but the last few drops require more effort—in the case of petroleum, more time, more expense, and special technology.

• Fields yet to be discovered. The largest, most accessible deposits of petroleum, natural gas, and coal have already been exploited. Newly discovered reserves are generally smaller and more remote, such as beneath the seafloor, and extraction is costly. Exploration costs have increased because methods are more elaborate, and the probability of finding new reserves is lower. But as energy prices climb, exploration costs may be justified (Figure 11-39).

Petroleum Production Outlook

The International Energy Agency forecasts that potential reserves will be converted to proven reserves through discovery and development of new fields at about the same rate as already proven reserves are depleted.