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OPINIONSEditorial

Energy is the central issueby Paolo ScaroniExclusive: Abraham B. Yehoshua

The oil legend talks about howthe Arabs and Israelis view oilby Simonetta Della SetaExclusive: Chakib Khelil

Today the dollar. Tomorrowthe yuanby Clara SannaFeature

The dutch diseaseby Thomas L. Friedman

FACE TO FACE: PEAK OIL

For how mach longerIn 10 or 20 years… maybe todayby Robert Hirsch

The day ok peak oil? It willcome but we won’t see itby Vijay V. Vaitheeswaran

The indescribable mistery of oilby Leonardo Maugeri

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China, mission reservesby Federico Rampini

WORKING TOOLSForecasts from Italy

The inadequate europeanismof italian politicsby Andrea RomanoEuroenergy

The utopia of the perfect marketby Guido GentiliThe way we were

A wildcat and a poet for Eni’scultureby Stefano Lucchini

DataWhat matters the most is what isnot thereby James HansenDataPreparing for the unthinkablea cura dell’ufficio studi Eni

Books and News from Italy andworldwideEvents in Italy and worldwide

Editor-in-chief:Gianni Di GiovanniEditorial committee:Stefano Lucchini

Editorial committee:Lucia Annunziata, Bernardo Bortolotti, Valerio Castronovo, Alberto Clò, Marta Dassù,Edoardo De Biasi, Guido Gentili, Harold W. Kroto, Raffaella Leone, Leonardo Maugeri, Adnane Mokrani, Edward Morse, Moises Naim, Joaquin Navarro Valls, Paolo Nicolini, Daniel G. Nocera, Mario Pirani, Federico Rampini, Marco Ravaglioli, Sergio Romano, Carlo Rossella, Giulio Sapelli, Giuseppe Turani, Enzo ViscusiCoordinator of editorial committee:Lucia Annunziata

Editorial team:Editorial team coordination:Clara Sanna

Alessandra Mina, Serena Sabino,Giandomenico SerraoAuthors:Simonetta Della Seta, Andrea Romano, James HansenPhotography:Archivio Storico Eni, Claudio Brufola, Grazia Neri, Getty Images, Riccardi Agr, Marino PaoloniEditing and production:AGI, via Cristoforo Colombo, 98 00147 Romatel +39 06 51996254 -385fax + 39 06 51996286e-mail: redazione@oilonline.itGraphic layout:Cynthia SgarallinoGraphic consultant: Sabrina MossettoPrinter:Arti Grafiche Amilcare Pizzi SpaCinisello Balsamo - MilanoTranslated by www.AgostiniAssociati.com

Closed for editing 22 april 2008

Printed on Cartiere Cariolaro E 2000 recycled ecological paper.This paper is made with 100% waste paper, treated with a mo-dern de-inking system utilising advanced technologies and pro-duction processes that do not use chlorine or whitening agents.

Editor Eni Spa Chairman: Roberto PoliChief executive officer: Paolo ScaroniBoard of Directors:Alberto Clò, Renzo Costi, Marco Pinto,Marco Reboa, Mario Resca, Pierluigi ScibettaPiazzale Enrico Mattei, 100144 Roma – www.eni.it

Eni quarterly – Year INo. 1 May 2008Authorisation from Court of Romeno. 19/2008 dated 21/01/2008

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ar from being a houseorgan, in launching thefirst issue of “Oil” our in-tentions are otherwise,as our readers will beable to judge for themsel-ves.At a time when public

opinion seems to be giving renewedattention to the subject of energy,though not without interrogatives, un-certainties and apprehension, a com-pany such as Eni recognizes its re-sponsibility to contribute and pro-mote a new awareness of the issuesin which it is involved as a protago-nist on the international scene. By in-forming, documenting and provokingdebate it will be able to contribute tothe formation of a veritable cultureon the subject of oil and energy.This is the task entrusted to “Oil”.Without disregarding the high profile experts in the sec-tor, guaranteeing them adequate documented infor-mation backed up by authoritative texts, the magazi-ne will give particular attention to a much wider rea-dership, people who are not actually involved in the sec-tor but who are interested in the subject and eager tounderstand. Popular terminology, not specialized lan-guage therefore, and articles of wide interest.Naturally, oil is the central theme, together with otherimportant social, cultural and economic issues whichagitate world opinion and which gravitate around thetheme of energy: from the environment to geopolitics,alternative sources to imbalances in world economy,etc. The importance of safeguarding the environmentand finding a sustainable energy system in the interestsof health and respect for the individual and the com-munity are values that have always characterized Eni’sway of conducting its affairs right from the start. We will pursue our objective with absolute commitment,completeness and clarity, as well as frankness in tac-kling themes which we realize are awkward and con-troversial. This approach is manifested by the very name

of the magazine, “Oil”, suggestive ofmany associated ideas, includingthe negative ones it brings in its wake(power, riches, war, pollution).As we undertake this ambitious taskwe are aware that we are followingin the footsteps of a glorious traditionof editorial and cultural commit-ment which has always characteri-zed Eni and are proud to do so. Thetradition was inaugurated by EnricoMattei, on the basis of his intuitionthat, not only did business and cul-ture not represent irreconcilablerealities but that, on the contrary, itwas in the interests of the companyto consider social implications andeven its vocation to do so in such amoment of extraordinary recon-struction. The tradition started offwith the magazine “Gatto selvatico”

(Wild cat) which Mattei personally sponsored (not bychance we are dedicating considerable importance tothis publication in the first issue of its ‘heir’ Oil) Atti-lio Bertolucci was its memorable first editor; Emilio Gad-da, Leonardo Sciascia, Natalia Ginzburg to mention justa few, were collaborators in the first magazine of the‘six-legged dog’, then, over the years, the tradition con-tinued with Eni, Ecos and Eni’s way. We hope that thespirit of the magazine and its aims are clearly mani-fest in this first issue. Ample space has been given topeople not closely associated with the world of ener-gy: such as the Israeli writer A. Yeoshua and T. L. Fried-man, an authoritative commentator for the New YorkTime. Then there is an in-depth analysis of the crucialquestion of the availability of world oil resources andthe question of “peak oil”, which animates an intenseand preoccupying debate between people. Then there are the “tools of the trade”: press reviews,write-ups, announcements and summaries of theprinciple initiatives of research and debate. Still fur-ther: data, statistics and graphs. Such understandingwill reveal its extraordinary fascination.

by GIANNI DI GIOVANNI

FA magazine to understand

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Editorial

here is no doubt that energy is ahot topic. Both in Italy and beyond,in government plans for importantchoices which concern the future ofthe planet, in dealing withquestions on economic and socialdevelopment of a country, andfacing the uneasiness regarding thesurvival itself of entire populationsthreatened by under-developmentand hunger, above all it is energywhich is being talked about.Availability of energy, coming fromwhere, at what price, by whatmeans. Energy for heating, energyfor transporting goods and people,

energy for lighting, energy for producing, energyfor guaranteeing, in other words, the fundamentalconditions for everyday life, even coming before thedevelopment or wellbeing of a population.Yet these vital topics are not often discussedoutside employee’s work environments. Publicopinion discovers how much the energy issue canaffect life, and the precariousness of the balancingact which guarantees energy security, only when acrisis puts it in doubt. It happened during the oil

embargo in ‘73, and morerecently in 2006 when tensionsbetween Russia and the Ukrainethreatened to block supplies ofgas and leave Europe in the coldright in the middle of theChristmas festivities.Furthermore, there is often theimpression that the subject ofenergy is hard put to attractattention in political debate, andthat choices that should bestrategic and long range appear tobe dictated by contingentnecessities or following on from

the initiatives of companies in the sector. And inthis it is not possible to complain about thesignificant absence of the European Union; theright organisation which should argue grandstrategies, which the populations of the oldcontinent can adopt and win, the European Unionwhich instead seems occupied in definingbureaucratic details and fastidious rules. This must all change. We are convinced that astrong, consistent policy must be adopted at aglobal level (but starting at a local level) on thesubject of energy in the future. However, we knowthat this will only be possible when the debate onthese issues leaves the rooms of the experts toinvolve the citizens, making them active

participants in the decision-making process. Whatis required is more information, more open debate,and deeper, documented reflection. ‘Oil’ wants tocontribute to this.A magazine that wants to be a container forreflection across the board on the subject of energy(oil initially but not only), alongside documentationon the various aspects of this subject, whichinvolves politics, finance, economy, social life, andalso culture and traditions. A magazine open todiffering opinions, a privileged place for aninternational debate on arguments which know nolimits. With considerable attention on the main questionsof the day, it is not by chance that this first editionof ‘Oil’ dedicates significant space to the subject ofthe scarcity of oil resources: ‘the peak oil’. This is acrucial issue which really must be looked into indepth. At the end of the era of hydrocarbon fossils(sure end, even if not imminent), we haveresponses which do not allay our fears. Progress isbeing made in the research into renewable energysources, the sun, and bio-fuels, but cannot yetprovide us with guarantees as regards the ‘after oilperiod’; a policy of efficiency and investment isrequired, in order to extend the lifetime of fossilfuels as much as possible. A policy to which Eni is committed but for which awider international initiative is necessary, whichcannot disregard public opinion: the necessarycomponent for every effort in this land. Tounderstand the impact of intelligently using oil it issufficient to remember that American drivers withEuropean consumption levels would allow a savingof all the oil produced annually by a country likeIran. With many more laws and regulations, the‘miracle’ could be realised through the pressure ofcar buyers, convinced by the requirement to savepetrol.On this subject we cannot allay our fears of theforecast that we will most likely have enoughhydrocarbon fuel for consumption for somedecades to come. We cannot allay our fears if, asthe market has been showing for months, priceshigher than ever in the past will ensure theavailability of crude oil. Whereas Westerneconomies are capable of supporting the mark-ups,developing countries are not. Can we pretend toignore the further deep injustices suffered by ourpoorer populations, which are made even poorerby the waste of the richest?? Another crucial issuewhich we will have to discuss.To inform, to debate, to make aware: in short, tocontribute in creating a new ‘oil culture’, absent intoday’s society of wellbeing and unlimitedconsumption. Eni, with ‘Oil’ wants to do this.

To inform, to discuss, to make aware tocontribute to creating a new oil culture andreflecting on energy topics This is what Oilwants to do

Energy is the crucialissue

Tby PAOLO SCARONI

Eni CEO

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hat’s the first thing that comes to mindwhen you hear the word “oil”?I think, that we don’t have oil, it’s the Arabswho have it. I associate oil with the Arabs.Since my childhood I’ve always seen thisconnection very clearly: the Arabs have theoil and the Jews don’t. We have to use ourheads and a lot of other resources, but wecan’t use oil.

Oil has something of a mythologicalattribute, then. What do you think isbehind that? Oil is a marvellous substance, because it’smade from organic components: minusculecreatures and plants that decomposed over

millions of years. Another great thing about oil is that it’s a sin-gle product, but it’s used in an enormous number of differentways, absolutely nothing is discarded: it’s a raw material thatis used in its totality. Oil is exceptionally useful because it ge-nerates energy and progress. It’s not giving the whole pictureif you just label it as a pollutant. We should instead considerits positive contribution, the pluralism of its uses, in industryand in life. Even the clothes we wear owe something to oil.Definitely, for Jews (or at least for Israelis) oil represents thecompetition: we have justice (?), they have oil. Anyway, whenI read that over 62% of world oil production is in Arab and Mu-slim hands, and I see that Israel still exists while the Palesti-nians struggle to build their own state, then I tell myself:we’ve beaten oil, even if only politically.

What does that mean?If the Arab countries have so much oil, the essential elementfor economy and power, but nevertheless they have not yetsucceeded in eliminating Israel. They haven’t managed tomake an international boycott work on Israel either, and thatmeans that we’ve beaten the forces of oil. With all of oil’s im-portance and necessity, the very existence of Israel has de-monstrated that it’s even more crucial and that its recognitioncannot be ignored.

In your opinion, why didn’t the boycott work?I think the economic boycott of Israel didn’t work mainly be-cause the Arabs are afraid of losing customers and the pre-cious money that they bring. Oil can be bought outside of theMiddle East as well, and the fear that the countries of the Westcould easily find or even develop other energy sources has

Wby SIMONETTA

DELLA SETA

Over 62% of world oil production is in Arab andMuslim hands,and I see thatIsrael still exists whilethe Palestiniansstruggle to build theirown state. We’vebeaten oil

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Scholar and journalist, SimonettaDella Seta is an expert in MiddleEastern and Jewish history. Shegraduated in Political Science underthe tutelage of prof. Renzo De Felice,with whom she has collaborated onnumerous research projects inconnection with the Jewishcommunities in the Mediterranean.She continued her studies at BrandeisUniversity, earning a Fulbright

Scholarship to study Middle Eastern history, andat the Jewish University of Jerusalem where shestudied the history of the Jewish people. She hasworked as a Middle Eastern correspondent for IlGiornale, Panorama and the Mediaset networksfor many years. From January 2001 to April2004 she was central editor-in-chief of theApbiscom Press Agency (today Apcom), of whichshe is also one of the founders. Her booksinclude: Israeliani e palestinesi, il costo dellanon pace (‘Israelis and Palestinians, the cost ofnot being at peace’), published by Giuntina-Nardini, 1999; Il Guardiano del Santo Sepolcro(‘The Guardian of the Holy Sepulchre’),published by Mondadori, 2000; La natura delloStato ebraico (‘The nature of the Jewish State’),to be published shortly by Bruno Mondadori.Since 1st February 2005 she has been director ofthe Italian Cultural Institute in Tel Aviv. .

Abraham B. YehoshuaHe signs his nameAbraham B. Yehoshua,the ‘B’ standing forBuli, the affectionatenickname by whichrelatives and friendshave known him sincehe was a small child.Author of novels, shortstories, dramas andessays, Yehoshua isconsidered, both athome and abroad, to be

one of the foremostIsraeli writers and isone of the mostauthoritative publicfigures in his country. He has won all theliterary prizes awardedin Israel, including theprestigious Israel Prizefor Literature in 1995.He has also receivednumerous internationalawards, amongst whichthe National JewishBook Award in theUnited States, the

Jewish Quarterly-Wingate in GreatBritain and theBoccaccio Viareggio andLampedusa Prizes inItaly. Whilst the literary workof Yehoshua focuses onthe complexities of theindividual psycheagainst a social,cultural and familybackground, his essaysdeal with ideological,political and ethicalthemes. In these essays,

the writer explores andfrequently casts doubtson the dogmas of Israelisociety: Judaism,Zionism, religion andnationalism, the Israeli-Palestinian conflict andanti-Semitism.Yehoshua’s books havebeen translated intotwenty-six languages(in Italy they have beenpublished by Einaudi),with numerous storiesand novels adapted forthe theatre, cinema,

television and opera. Yehoshua was born inJerusalem on 9thDecember 1936, a fifthgeneration Sephardi onhis father’s side andfirst generation on hismother’s. His father,Jacob Yehoshua, is anOrientalist, a scholar ofthe Palestinianlanguage, history andculture, who opened hisson’s eyes to the uniquenature of the Palestinequestion, indirectly

The oil legend talksabout how the Arabsand Israelis view oil

Exclusive: Abraham B. Yehoshua

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made the Arabs a lot more cautious in their calls for a politi-cal and economic boycott of Israel. Let’s not forget, either, thatthe global economy has minimised the impact of a boycott,since almost all big companies can create subsidiaries that cansell their products to boycotted countries anyway. For thissame reason I don’t see sanctions working against Iran either.

Yet that’s exactly what the Israeli government is askingthe world to do.

Most oil in the Middle East is sent to the east. Iran has hugecustomers in Asia: China, India, countries that are increasin-gly developed in industrial terms. I don’t think that a boycottby the West can really influence its development and especiallyI don’t think it can stop its nuclear programme. What’s nee-ded is to make guarantees to Iran that are so heavy that it willnot consider adopting offensive weapons, only defensive. Af-ter the war in Iraq, Teheran knows very well that the Ameri-cans can attack. I think that today, no country in the MiddleEast wants to start a global war against Israel. One of the rea-sons is oil: they know that today Israel has the power to de-stroy their oil infrastructure immediately.

Is fear spreading to all Arab countries? Having oil is definitely a weapon, but the way things are to-day it makes the Middle East countries more vulnerable be-cause it wouldn’t be difficult for Israel to wipe out their refi-neries and rigs with the military power it has built up. This isanother reason that, although the Arab states want to use oilas a weapon, they’re being very careful not to wave it around

too much. Some of them, like Saudi Arabia and Kuwait, havedecided some time ago not to use oil against Israel. It couldbackfire against them.

That means that for Israel, Arab oil rigs and refineriescan be considered a military Achilles’ heel.

Nothing new there. Even in the war of attrition that followedafter the Six-Day War (1967), one of the reasons why Egypt ac-cepted the ceasefire with Israel in 1970 was the fear that Israelwould attack Egyptian oil wells, which they had already be-gun doing. There’s no doubt that the oil in Sinai was a tem-ptation for Israel to not give in easily to the peace deal beingbrokered by the Americans. And maybe oil was one of theprincipal causes of the Yom Kippur war in 1973, deriving fromEgyptian fears that the Israelis had their eyes set on Sinai oil.By breaking the status quo with the war, they hoped to makethe Israelis evacuate Sinai once and for all.

Was that the period when Israel felt it was closest tohaving oil?

Definitely. I remember it very clearly. The Israelis had alwaystried to get oil. I remember as if it were yesterday, one day inthe 1950s when the radio announced that we had finallyfound oil near the city of Ashkelon: the emotion was incredi-ble, everyone was talking about it, what a sensation it was thatwe were now finally equal to the Arabs. In reality the quan-tity of crude found was so small that the whole operation wasbroken up in short order.So when we took Sinai – and I remember this personally be-

Loved abroad, where he is known for hiscommitment to peace,Yehoshua is anintellectual figure right across the board.Novelist and essayist,also involved innarratives andtheatrical works, he is the best known Israeliwriter in the world

Interview

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influencing his generaloutlook. Abraham drewon his father’svoluminous librarywhen writing his novelMr. Mani (1990), whilstthe background of hismother, Malka Rosolio,born in Morocco anddaughter to a richmerchant, inspired hisbook Voyage to the Endof the Millennium(1997). His earlyexperience with themoderate Jewish

Sephardic tradition,together with his layand Zionist education,have stirred hisunceasing interest incomplex identityproblems, very muchthe leitmotif of hisentire production. After completing hismilitary service in1957, Yehoshuafollowed courses inliterature andphilosophy at theUniversity of Haifa and

published his first shortstories, later puttogether and publishedin his first book TheDeath of the Old Man(1962). He graduatedand started teachingliterature at Jerusalembefore moving to Pariswhere he lived from1963 to 1967, employedfirst as headmaster of aschool and then assecretary general of theWorld Union of JewishStudents. In Paris he

completed his secondbook of tales and shortstories, Three Days anda Child (1968). Hepublished fourcollections of shortstories before writinghis first novel, and hissubsequent writingwould mostly take theform of this genre. Hereceived attention fromthe critics right from hisearly short stories.They perceived theinfluence of Shmuel

Yoseph Agnon andFranz Kafka in his workand recognized hisundoubted talent,anticipating that hewould eventually makean importantcontribution to worldliterature. Returning to Israelimmediately after thewar in 1967, he enteredthe University of Haifaas head of thedepartment for thepromotion of immigrant

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cause in 1956 I served in the Sinai campaign – we understoodthe importance of those oilfields. I was in Ras Sudar, an oiltown, for a whole month: everything there was based on theoil business. We experienced at first hand what it meant tohave oil and we understood why it had assumed such legen-dary importance in the Arab world.

At the end of the day you all live in the same deserts, onadjacent territories. Wasn’t it simply bad luck that younever found even a single oil well?

No, quite the opposite. I can confirm that not finding oil wasin many ways a good thing. It prevented us from dependingon oil, it drove us to look for other sources of energy, it madeus use our activities in the sector in more sophisticated ways,and it stimulated us in other directions, like high technologyfor example. Oil makes you lazy. That’s what happened to theArabs. I read that the town of Jeddah has an ongoing problemwith junking tens of thousands of cars abandoned in thestreet, maybe because the petrol tank is empty and it was ea-sier to just buy a new car. This kind of easy wealth, especiallyif it’s given to a certain social class, makes people lazy and itmakes society a bit lazy as well.

The dream that became a trap?Let me be clear: it’s only right that the Arab countries have oil.Call it a form of compensation for the fact that they’ve got alot of desert. We Israelis have often seen it that way: they haveno lakes, no forests, no mountains, but they have oil. It is, ho-wever, true that an advantage can easily be transformed intoa disadvantage because the easy exploitation of oil can put abrake on initiative, on production, and on development. Tha-t’s not always the case, though. Take a completely differentexample: Norway. They have a lot of oil, but this resource ha-

sn’t increased the standard of living disproportionately or tooquickly. On the contrary, it guarantees a continuity of the qua-lity of life for all Norwegians, by keeping the society active andproductive, not by reducing payment of taxes but basically byapplying standards to oil extraction that we could define as‘moral’.

Do you think Arab countries could do that too?Definitely. I don’t know each individual country in great detail,but I think that in the Emirates they manage better than inother countries to distribute the oil wealth more equably. Atleast, that’s what I believe based on the impressions I’m get-ting. Nice buildings, good technology: better use of their he-alth and wealth.

Do you think that oil has ever been a factor in theMiddle East conflicts?

No, I don’t. One of the more depressing observations hasbeen that Arabian oil has never helped the Palestinians. Thebillions of dollars coming from the sale of oil have never beeninvested in helping the Palestinian cause, or in construction inPalestine, or to create infrastructure, or give them jobs, or closethe refugee camps. Yes, it’s true that the Arab states have madesure that the Palestinians survive and not collapsed, but at thesame time they’ve stopped short of really giving them a handup, i.e. making them happier people and able to negotiate froma stronger position, to obtain a solid agreement with Israel. Af-ter Israel’s retreat from Gaza, if Saudi Arabia had talked withHamas and promised, in exchange for a ceasefire with Israel,to invest properly in the Gaza Strip and create a sort of Pale-stinian Singapore, this would have made the Israelis retreatfrom the trans-Jordan quickly as well. The way that the Arabstates support the Palestinians – keeping them alive, but wi-thout really helping them – only serves to keep the conflictgoing.

Has oil been a factor in the Middle East conflict in thewider sense?

You mean, did the Americans declare war on Iraq for its oil?Definitely not. With hindsight we know that it was a stupidwar, but oil isn’t the reason the US went into Iraq. And evenif the US had wanted to take control of what little oil the Ira-qis have, don’t you think they spent much more money just tomount that war? The record of Iraqi oil doesn’t stand up toscrutiny. I think that what made the Americans go to war wasthe fear of Bin Laden and Saddam Hussein’s nuclear weaponsprogramme. But they made a huge mistake. Not being able touproot a dictatorship, they should have contented themselveswith changing a few people at the top, instead of destroyinga whole system – or destroying a whole country, more cor-rectly. But that’s another story.

Can we relate to oil as a metaphor: very precious, yetheavy and sticky?

As I’ve already said, oil can represent an advantage and atthe same time it can be a danger. This is true politically butit’s also true in terms of energy. It can, for example, becomean enemy of the environment in the eyes of many. If oil be-came cheaper, the threat of pollution would rise. We have tounderstand this ambivalence, protect ourselves from thesescenarios and prevent them. I remember after the Yom Kip-

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students and membersof minorities, and in1972 he was appointedprofessor ofComparative HebrewLiterature, a post whichhe held until he retiredfrom teaching in 2002.Following the six-daywar and the changeswhich followed,Yehoshua, active inseveral left-wingmovements, publishedhis first essaysdeveloping his own

political and ideologicalposition. Thanks to thisactivism and hisintellectual andrhetorical capacities, hecame to be considered,both at home andabroad, as one of theprinciple spokesmen forleft-wing Israelipacifism. Most of hisessays, oftencontroversial, werecollected into threevolumes: For Normality(1980); Between Right

and Right (1981) andThe Wall and theMountain (1989).Another collection ofessays, The TerriblePower of Minor Guilt(1998), is centredaround the moraldilemmas at the basisof great literary texts. After publishing hisfirst novel, The Lover(1977), Yehoshua wroteeight short stories inwhich he explores newartistic forms, widening

the historic narrativeand restoring the writerto “his lost authority todeal with social,economic, historic andideological themes”.The background to hisfirst two novels, TheLover and A LateDivorce (1982), as wellas the majority of hislater work, is thefamily, a place ofcharacter and identityformation and a mirrorimage of society. Mr.

Mani, acclaimed by thepublic and critics alike,is the most importantand ambitious of hisnovels. It is also thework of modern Jewishliterature most studiedby the critics. As in thepreceding book, Molcho(1987, translated asThe Five Seasons), theoriginal nature of thesetting comes from thejuxtaposition of theSephardic dimension(or the original

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pur War in 1975, the Shah of Iran announced caps on theproduction and sale of oil, to make the West develop alter-native energies. The idea was, we have to prepare for it,otherwise one day the energy will run out. I think this is avery correct attitude, one that we can learn from. So, we haveto keep oil prices down, but we also have to find new wells,and we also have to develop forms of alternative energies.The dispute, the tension between these two extremes will lastfor eternity, I think.

That’s the general dilemma with progress and science:how far to push ahead and how far to cut back.

I think we have to work towards a progress that’s positive andcontrolled, at times slower but also safer.

Why is it that the Israelis have never given theimpression of being obsessed by the energy question?

At the beginning we used it often as an excuse: if we were bea-ten in a UN vote for example, it was always because of oil. Astime went on we understood that it didn’t work – either as aweapon or as an excuse – even for us. As an instrument ofstruggle and dispute, the intifada has been much more effec-tive and realistic than oil.

Do you consider yourselves an example, i.e. a countrywithout oil, surrounded by oil, that has resisted thepower of oil (or the mythology of oil)?

There are many other countries without oil. And in any caseI don’t think that the oil factor is a negative one today for Israel,quite the contrary in fact. Paradoxically, oil could play a newand positive role in resolving the conflict.

What role is that?Behind the peace proposal recently made by the Arab statesto Israel is actually their fear of Iran, their desire to avoid thegrowing danger that Iran presents for the region, because ofthe nuclear programme of course but also because of the oilthat Teheran is selling freely to China and India. Think backto what happened in 1991 when Iraq invaded Kuwait: part ofthe Arab world rebelled against Saddam Hussein. Now theycan see the danger of Iran and they understand that it’s bet-ter to reach an agreement with Israel than it is to risk a glo-bal regional conflict, with Iran so powerful.

The proposal made by the Arab League to Israel istherefore linked to the Iranian threat.

Yes, definitely. Iran is developing nuclear power and also it’sfrom Iran that Middle East oil is sold to all of Asia and the FarEast. There’s also the danger that Iran could incite the Arabworld to revolt against its own regimes. The Arabs have al-ways used the Palestinian question to bind their populationstogether and so avoid internal revolts. Today the problem isthe reverse. It could be Iran to use the Palestinian question,through Hamas, to derive benefit for its power in the regionand strengthen the fundamentalist groups in the various dif-ferent countries. That’s a prospect that the more moderateArab states don’t like. That’s why I can see an opportunityopening up. But the solution will come only if these Arabcountries decide to make financial investments, give the Pa-lestinians a real hand up and make Israel retreat from thetrans-Jordan as well.

Where does Israel's oil come from?Mainly from Egypt, but also from Turkey and from someAsian countries. With Egypt, trade is very important. We’re agood customer and we’re right on their doorstep. It’s one ofthe positive aspects of the peace accords signed by Begin andSadat. In any case Israel is also trying to use other forms ofenergy: coal, gas and water.

Do you have local sources of natural energy? Almost none. That’s why we’ve developed our brains. There’snothing genetic about it, it was purely a case of necessity. We’dlike to use our heads to cooperate with our neighbours.

Could the difference in mentalities between the Arabstates and Israel be a barrier to cooperation?

Absolutely not. Look at all the common initiatives Israel hasdeveloped in recent years with China, a country with which wehave almost nothing in common. All we need is the will anda common goal. We need to arrive at a solution soon. The in-gredients are the will, money and military guarantees. But theArab world has to be persuaded that reaching a peace agree-ment is in its best interests.

Why doesn’t oil inspire art? In your opinion, why has oilnever been the theme of novels, films, or the theatre?

Because it doesn’t involve a struggle of man against nature.Looking for oil or pumping it out of the ground has no drama,no conflict. Oil belongs to the land in which it’s found. It can’tbe a private good, it can’t be contested between people, it ca-n’t be stolen or hidden. It won’t damage a village or even a per-son. Water, for example, flows from one place to another andso it can create conflicts. Gold belongs to whoever finds it. Butoil is either there or it isn’t, and it’s linked to that place: it ca-n’t elicit moral conflicts. We can write a story about dia-monds, but not oil. There’s no feeling in it.

In your books you describe the drama of humansentiment very well. Don’t you think that people areincreasingly anguished about energy and environmentalquestions?

Oil is a primary resource, like land or water. The anguish youmention isn’t about the oil but about how it can be used. Thisemotion is alleviated by our trust in technology. My feeling isthat people believe that technology will help us find better so-lutions. My son works in the Israeli Ministry of the Environ-ment. I was reassured to hear from him that awareness of en-vironmental problems is growing very rapidly, at least inIsrael, and that there’s a definite level of confidence thatthings will improve. The important thing is to start from astrong information base. That, together with science and te-chnology, is what I hope will save us from global warming,from pollution and from other problems.

Can you imagine a world without oil?No, I can’t. I’m no expert, but I believe there’s still a lot of itdown there. Maybe it’ll be used in different quantities, or indifferent ways – I’m thinking of air travel – but we’ll never beable to easily break free from finding it and using it. We knowthat it’s not a weapon, nor is it an excuse, or even a solution.But the world needs oil.

Interview

7

Hispanic-Mediterranean Jewishstock) and theAshkenazi (originatingfrom Germanic andEastern EuropeanJewish stock) Thegenealogical novelinvestigates the oftendisastrous effects thatthe personal andcollective subconsciouscan have on individualsand nations. A plot fullof sentiments andpsychological problems

that have universalimpact. A passion for travelling,restlessness and atendency to revealsubconscious anxietiesand desires, lead manyof Yehoshua’scharacters to take anadventurous course ofaction in unknowncontinents, whereconfrontation with theirrational becomesinevitable. An exampleof this is Benji’s

passage through Indiaand from India in thebook Return from India(1994); the sea voyageof Ben Attar at the endof the first millenniumin Voyage to the End ofthe Millennium; Thecontinual journeys ofprof. Rivlin toJerusalem, along theJordan Valley, and to avillage in Galilee in TheLiberating Bride (2002);and the Calvarysuffered by a human

resources manager inan anonymous town inNorthern Europe in TheMission of the HumanResource Man (2004);finally, the protagonistof his last novelFriendly Fire, who getslost in Africa to escapefrom the difficulties oflife. Yehoshua hasextended hisdescriptive intensity indescribing dramaticoften fatal situations totheatrical works such

as Night in May (1969)and Possession (1986).Many of his stories andnovels have beenadapted for the theatre(Mr. Mani); for thecinema (The Lover) and,recently (2005), foropera (the librettowritten by Yehoshuahimself is based onVoyage to the End of theMillennium. It will goon stage at the Teatrodell’Opera of Rome inMay 2008).

For Israel, not finding oilwas in manyways a goodthing. It droveus to look forother sourcesof energy, it stimulatedus towardshightechnology. Oil makes you lazy

oilbodoni_num1 ING.qxd 27-05-2008 11:41 Pagina 7

as oil price really reached its peak? Is therethe possibility to further increase the oil ex-traction consequently to the increasing de-mand of oil worldwide? Chakib Khelil, oneof the leader specialists in the sector andOPEC's president at present, has no doubts:one day oil will deplete. It will not happentomorrow, maybe in 50 or 100 years but forthat day vehicles will not run on gasoline.“What has occurred with regards to coal,”explains Khelil in the interview, “will occurwith regards to oil, too: coal reserves arelarger than oil ones. Their utilizationthough decreased with time as oil was con-sidered to be more economic and flexible.In the meantime, thanks to the technologi-

cal progress, man has discovered alternative energy sources,and other more competitive products will be found. So, finallywe may not worry because,” as Khelil underlines, “my per-sonal thought is that oil will be less and less utilized withtime, so what we shall see is a ‘demand peak’ rather than an‘oil peak’.”

President, the words ‘oil peak’ are on everyone’s lips.But are we really approaching the point of no return?Have we reached the maximum production ofpetroleum?

Acknowledging the fact that reserves are limited, the idea ofan "oil peak" derives from the study made by Marion KingHubbert in the United States. This theory is graphically re-presented by a bell curve that shows how after depleting halfof the reserve, a decline will follow. I think that Hubbert hasnot considered that thanks to the technological progress, re-serves have increased a lot. For instance, we have now te-

chnologies enabling us to find oil in places where we wouldhave never thought it would be like in the sea depth, or al-lowing us to extract a higher volume of oil from the same oil-field. Therefore, technology is quite important. It must be ad-ded though that there are still many places in the world thathave not been explored yet. So, I think that oil will depletein the long term but in the reference period - the next 50/100years - there won't be a crisis. My point of view is that whathas occurred with coal, will occur with oil, too: coal reser-ves are greater than oil ones. Their utilization though had de-creased with time as oil was considered to be more econo-mic and flexible. Coal extraction has decreased not becausethe coal reserves are limited but because its consumption hasdecreased. My opinion is that oil will be used lesser and les-ser in the future as a result of its cost and to its impact onthe environment. Other more competitive energy sources willbe found, such as bio-ethanol which is replacing oil-fueland petrol. Just to mention an example. Another example isgiven by what has happened in the energy production sec-tor where oil has been replaced by natural gas at first, andby other resources such as solar, wind and nuclear power.Personally, I think that we shall have a decrease in the uti-lization of oil as energy source in the future, but there willbe a "peak of demand" rather than a "peak of oil" by thetheory expressed in a recent article on the "Petrol Strategies"a journal published in France.

So, if we put together your two replies, what you meanis that peak oil is not so close, but we shall be ready atthe same time to begin the development of newenergy resources?

Yes, exactly. We shall acquire a good grounding as experienceis necessary as well as training, laboratories where to makeresearches and funds availability, on Europe's trails. Weare Eni's partners in other countries besides Algeria andItaly. We have some customers in Italy that are buying bothliquid and gaseous gas and Eni cannot play a greater role fornow in the Country on account of the liberalization process.For this reason we cannot depend on Eni but we can direc-tly distribute by ourselves on the market small quantities ofgas, 3 or 4 million cu. meters. Not very much really... It willhelp us to build up experience and give us an idea on howthe market works. This is of the highest importance for Al-geria. At the same time, we want to work with Eni in manyother sectors and in particular in the prospecting sector. Weare already cooperating, in Algeria of course but also in Mali.We are contemporaneously trying to identify other Countrieswhich we can cooperate with. Maybe the next one could beNigeria. We are absolutely not setting limits to that. Wehave a long-dated relationship with Italy and for this reasonthe gas pipeline has been entitled to Enrico Mattei. In addi-tion, Algeria is the setting of many roman ruins, Djemila andTipasa, Tigad all beautiful places where roman ruins are pro-bably best worldwide preserved.

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Today the dollar. Tomorrow the yuan

Exclusive: Opec president Chakib Khelil talks

One day the oil will run out, but that day won’t betomorrow: maybe in 50 or 100 years. Instead of the oilpeak it is better to speak of a demand peak. For thefuture, Opec sees greatness in China

Hby CLARA SANNA

Our target is thesatisfaction of thisgeneration’s and of futuregenerations’energy needs at the lowest cost and withthe lowestenvironmentalimpact possible

Chakib Khelil

Since January 2008,Chakib Khelil has beenpresident of Opec. Bornin Oujda, in the north ofMorocco on 8th August1939, he graduatedfrom the University ofTexas A & M with athesis on oil engineeringand, after working for afew years in the UnitedStates (for Shell andPhillips Petroleum), in1971 he went back toAlgeria and entered

Sonatrach. He was thenappointed president ofthe “VALHYD group”(HydrocarbonDevelopment Plan ofAlgeria) and in 1980 heentered the World Bankwhere he dealt with oilprojects regardingAfrica, Asia andAmerica. He left theWorld Bank in 1999 tobecome minister forMines and Energyunder presidentAbdelaziz Bouteflika. Inthe meantime he also

became president of theAlgerian hydrocarbonauthority, Sonatrach.As minister heinaugurated a period ofprogressiveliberalization of theAlgerian oil market andhas had laws on energy,mines andhydrocarbons passedwhich have broughtabout a changedrelationship betweenSonatrach, a publiccompany, and foreigncompanies.

oilbodoni_num1 ING.qxd 27-05-2008 11:41 Pagina 8

9

Interview

Let's we talk about the energy policy in your Country.Which are the future strategies and scenarios?

I think the scenarios that are in store for our Country -as forthe petrol demand in the future - are not different from theItalian or American ones exception made for the fact that wehave more oil and more gas, at present. Our target - both forAlgeria and Italy - is in my opinion the satisfaction of this ge-neration and of the future ones' energy need to the lowestcost and with the lowest environmental impact possible.So, even if we have larger reserves than a country like Italy,we are already looking for alternative resources. We cannotwait for the depletion of our oil reserves before starting tolook for solutions. It is necessary to start moving before thishappens. Solar power has already been taken into conside-ration. We are just building a 150 MW plant powered by gasand solar power. This project is 350 million dollars worth.With time passing, we shall use lesser gas and more solar po-wer till, thanks to technological progress, we shall only usethe solar power. This may happen in 20 maybe 30 yearswhen finally we shall be able to make it happen thanks to theproduction costs decrease consequently to the technologicaldevelopments obtained. For now, we are evaluating all thepossible options such as oil, gas, wind, solar and nuclear po-wer looking for the one that will be the cheapest in the longterm, just like any other country is doing. One of the aspectswe are taking into consideration is safety in the power sup-ply. For this reason we are more inclined towards solar ra-ther than nuclear power. Ours is a sunny country. On the con-trary nuclear power is based on uranium which is a resourcedestined to deplete, too. What I mean is that we need to di-versify and use energy in a more efficient way. For this rea-son now, when you listen to the radio in the morning, youcan always listen also in Algeria a message for its people onhow to save energy. There is a woman talking to her husbandand saying how high is the electricity bill. To save money,says the ad, just use natural light instead of artificial one! Thesame applies to the energy saving connected to a moreaware and correct utilization of household appliances. Weare working on efficiency, energy storage, and we are alreadyusing energy derived from different resources. We hope to beable to rely upon those energies in the future rather than pe-troleum and gas.

What do you think about the Old World, the WestWorld and the emerging Powers like China and othersuper-nations relationships?

I think that the relationship with China and India has beenquite good till now because these countries need our te-chnology and techniques. They sell products, resources, go-ods and services to the Western Countries: to America, to Eu-rope and take from them the benefits deriving from theinformation or nuclear technology. If you look at China youwill see that all types of technologies are present, not onlyone type. Moreover, they have their own technology. As wellas the American, French, Canadian one and their own nu-clear technology, too. So, I imagine they are doing the samething with petroleum technologies, and they are piling themup at a high rate. They are becoming very competitive as aresult of the low cost of workers both specialized and trai-ned ones and simple manpower. These countries, only eco-nomic powers to date, are now becoming financial powerstoo as they are stocking reserves and a lot of dollars. Theyhave so the power to control financial tools like those onesavailable at Morgan or at other big financial groups. Hence,a new politic power stems from this new financial power. So,as for the future, I think that these powers will take onmore and more importance and will have something to say.The present chief economist of the World Bank is, for the firsttime, a Chinese and this is of the highest importance. If yourecall, just in 2005 the Chinese companies wanted to buy anAmerican oil company. The acquisition had been stopped bythe USA Congress that has so set the national interest beforethe free market. Well, globalization does not work in this way.It is not a one way direction. It should go on both directions.In the old days, the United States feared the Japanese whenthey were buying everything. Now, it is China's turn and isfollowing the Japanese path. China will say more and moreits opinion, will become more important because has an im-portant economy and maybe, one day, we shall use yuan asreference currency instead of dollars. Lately, I have been

oilbodoni_num1 ING.qxd 27-05-2008 11:41 Pagina 9

asked - referring to Opec - what I think about using dollars.My reply was that sooner or later it will be necessary to usethe currency of the most powerful country, of the greater po-litical and economic power. It works in this way. The U.K. hasin the past imposed the use of pound as it was a great poli-tical power, now it is the USA's turn and then maybe it willbe China's or Russia's or some other nation. These powershave interdependent economies and policies, and I do not seeany conflicts, personally. I think that this exchange of te-chnologies will be positive for the whole world as China couldcontribute to make technology available to more people.China could, for example, play an important and positive rolein Africa. A role the neither America nor Europe have beenable to play. Infrastructures could be built, accomplish allwhat the Africans cannot accomplish receiving gas and oil inreturn. Europe and America could have done it, too and re-ceive these goods as payback, but they didn't do it. On thecontrary, China is already building infrastructures, roads -necessary to these countries - dams and houses. This willhelp, at least, to raise the quality of life in our continent.Other countries could play an important role, not only China.Once infrastructures have been built and there is availabilityof means and money, USA and Europe could again do busi-nesses with countries of different geographical areas, nownot reached by China.

President, what do you think in general of thepetroleum-sustainability combination, wheresustainability refers to the set of relationships among

human activities and their dynamics. Relationshipswith the purpose to allow continuity of mankind,satisfaction of the needs of the individual anddevelopment of human cultures.

I think that nowadays, enterprises cannot do business withouttaking these issues into account . Each company has what canbe defined as an environment, safety and health department.These are crucial topics, acknowledged by all companiesthat approach them in their own way, by their own abilitiesand awareness. Our Company, which is a state-owned com-pany like Eni, I believe, has always been very attentive tothese issues. A state-owned company's task is to protect theinterests of the Country and of its people: Sonatrach, the Al-gerian state-owned company has many projects for the com-munities in which it operates. There is a department for so-cial investments, and we do a lot with regards to energy,health, education. In Algeria, a lot has been done as for cul-ture, scientific reports, history, film making and film industry,as well as for young people. We think that these are indi-spensable matters. We take care of the protection of envi-ronmentally and historically important sites. For example, wehave set up a foundation with the sole purpose to safeguardculture and protect the flora and fauna of this very delicatearea. Finally, we are doing a lot, not only for people, for cul-ture but also to preserve the music heritage of the country.There is an instrument in Algeria with only one person ableto play it now. We have then established a school where to te-ach girls to play it so this historical heritage does not get lost.If it gets lost, history gets lost. Finally,-and obviously- we do

Interview

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According to presidentKhelil, there will be

a gradual decline in oildemand over time and we'll

talk more of a "peak indemand" than "peak oil"

oilbodoni_num1 ING.qxd 27-05-2008 11:41 Pagina 10

a lot for the environment by planting trees. There are planscovering this issue, i.e. the environment protection. In addi-tion, to this end, through the education system, we bringawareness to the young people with regards to it.

Algeria is a manufacturing country and is now aimingto enter the distribution market. From this point ofview, is the relationship with Italy fundamental? Inaddition, what are you expecting from Italy asfacilitating agent? What does Italy represent for you?

As I said earlier, we are a global market, generally speaking.This means that there are difficulties but opportunities, too.We have seen that Sonatrach had the chance to enter othercountries' market not only as a simple oil and gas supplier.We have identified the areas where we could become morecompetitive. As for gas, we have tried to be, in some cases,co-owners of some terminals and not only their suppliers: forthis reason we have a partnership in the U.K. We have alsocreated companies connected to gas marketing as the latteris a sector which we are good at. We have established a mar-keting company and not a distributing one, in Italy andSpain. We are not interested in distributing gas. There arecompanies that can do it better than us. As far as I know,there are over one thousand distribution companies in Italy,and we cannot compete with them. In Italy, the supply of acluster of companies is a sector in which we can compete.This is what we are doing and what we are interested in. Wefeel that if we can move "downstream", others can move "up-stream".

pec is the acronym of “Organization of the Petroleum ExportingCountries”. Founded during the Conference of Bagdad in September1960, initially it was made up of 5 countries (Iran, Iraq, Kuwait, SaudiArabia and Venezuela), but later the number increased to 11 as Qatar(1961), Indonesia (1962), Libya (1962), the United ArabEmirates(1967), Algeria (1969) and Nigeria (1971) also joined.

Altogether they cover about 40% of world oil production and 14% of naturalgas. In their subsoil there are about 80% of the planetary oil reserves, a quarterof which held by Saudi Arabia alone. Opec is an international organizationwhose member states get their main source of economic revenue from oil. Forthis reason it controls and limits oil production in its member countries. The objective of the organization is to achieve stability on the oil market byregulating the levels of production in member states thus helping to maintain abalance between supply and demand. Although oil production in Opeccountries is less than half that of the rest of the world, in reality its percentagerises to 60% in terms of oil traded on world markets. This is because a large proportion of oil production extracted by countries notbelonging to Opec is destined for internal use. Therefore, by exercising theirchoice to produce more or less oil the Opec countries can influence the priceof crude oil all over the world. However, we should not lose sight of the fact

that the price of oil is one thing, but the price ofpetroleum products, such as petrol, is another. In thislatter case the costs of transport, refining and distributionplay a major role, not to mention the heaviest factor ofall, taxation. When Opec was founded hardly anyone noticed. In fact,in 1960 the supply of low-cost oil was plentiful on amarket controlled by the large western oil companies.During the seventies, initiatives undertaken by Opecaimed almost exclusively at defending prices andtherefore contrasting the power wielded by these largeinternational oil companies. At first, however, theattempt to elaborate a common policy betweenmember states had scarce results and even agreedproduction quotas were often violated. At the onset ofthe seventies, the international demand for crude oil

exploded and Opec suddenly found itself in a position of advantage withrespect to the oil companies. In 1973, it succeeded in imposing a big increasein the price of crude oil which passed from 3 to more than 11 dollars a barrel.Furthermore, between 1971 and 1972 some producing countries (Algeria, Iraq,Libya) nationalized their oil industries while still others instituted greater controlover oil companies. A further increase in the price of oil came about after theYom Kippur war when the Arab members of Opec imposed an embargo oncountries supporting Israel in the conflict.Between 1975 and 1979 international demand for oil regained momentumand prices achieved a relative stability. However, this situation was interruptedby the Islamic revolution in Iran which resulted in a further rise in the price ofcrude oil. The price reached 32 dollars a barrel and provoked widespreadrecession in industrialized countries. The situation worsened at the beginning of the eighties after the outbreak ofwar between Iran and Iraq, when a further increase in the price of crude oil(which rose to 42 dollars a barrel) provoked a violent war in prices, bothamong member countries of Opec and other oil producing countries with theobject of obtaining a greater market share. In the following years, the fear of a rapid depletion in crude oil reservesencouraged Opec, with scarce results, to adopt a policy aimed at regulatingextraction and stabilizing the price of crude oil which, as a result of the economic crisis in industrialized countries, the energypolicies adopted by the same and by the discovery of new oil fields, hadsuffered a downward trend to around 10 dollars a barrel. Towards the end of the eighties, just after the Iran-Iraq war, Opec managed toachieve a relative internal cohesion and agreement with other oil producingcountries to avoid a further drop in the price of crude oil. However, the Gulfwar put into discussion once more the agreement reached with much difficulty. In the emerging political and economic situations and their relative equilibriumthe organization has an important role to play.

O

Opec, 11 statespossess 80% of crude oil

11

Internationalcompanies have to cooperatemore closely with domestic oilcompanies becauseinternationalcompanies ownmore technology,management andknowledge thandomestic ones, but lack resources.Therefore, by combiningthese two things,the best resultsshould be attained

oilbodoni_num1 ING.qxd 27-05-2008 11:41 Pagina 11

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The demand for oil is aconcern for ussince it is closelyrelated to theworld economygrowth rate.Consequently oil demand will decrease in a situation of economicslump

Feb2006

Mar Apr May Jun Jul Aug Sep Oct Nov Dec FebJan2007

Jan2008

Mar Feb MarApr May Jun Jul Aug Sep Oct Nov Dec

32.5

32.0

31.5

31.0

30.5

30.0

87.0

86.5

86.0

85.5

85.0

84.5

84.0

83.5

83.0

Opec crude production (LHS) World supply (RHS)

OPEC AND WORLD OIL SUPPLY

Total Opec crude oil production averaged 32.01 mb/d in March, a decline of 141 tb/d from the previous month accordingto secondary sources. Opec production (not including Iraq) averaged 29.56 mb/d, down 174 tb/d from the previous month.Production in Indonesia, Iraq and Iran witnessed some gains, while all other members saw declines. In the first quarter,Opec production averaged 32.06 mb/d.

Preliminary figures for March indicate that world oil supply averaged 87.02 mb/d. This represents a gain of 0.16 mb/d overthe previous month, with Opec’s crude share at around 36.8%. The estimate is based on preliminary data for non-Opecsupply, estimates for Opec NGLs and Opec crude production from secondary sources.

OPEC CRUDE OIL PRODUCTION

Algeria

Angola

Ecuador

Indonesia

Iran, IR.

Iraq

Kuwait

Libya, APA.J.

Nigeria

Qatar

Saudi Arabia

UAE

Venezuela

Totale Opec

Opec (excl. Iraq)

2006

1,365

1,385

536

895

3,845

1,932

2,520

1,702

2,235

821

9,112

2,540

2,539

31,428

29,496

2007

1,360

1,662

506

844

3,851

2,089

2,465

1,710

2,126

807

8,651

2,504

2,392

30,968

28,879

3Q 07

1,365

1,678

508

836

3,859

2,107

2,467

1,718

2,154

814

8,584

2,575

2,377

31,043

28,936

4Q 07

1,388

1,783

508

841

3,898

2,333

2,513

1,742

2,162

827

8,909

2,429

2,395

31,728

29,395

1Q 08

1,400

1,878

501

864

3,933

2,313

2,537

1,748

2,047

839

9,052

2,578

2,374

32,062

29,750

Jan 08

1,410

1,859

503

843

3,902

2,202

2,557

1,743

2,076

826

9,083

2,592

2,397

31,993

29,791

Feb 08

1,403

1,898

502

868

3,878

2,357

2,547

1,751

2,068

839

9,055

2,596

2,390

32,151

29,794

Mar 08

1,396

1,881

496

881

3,963

2,390

2,511

1,743

2,023

835

9,025

2,534

2,333

32,010

29,620

mar/feb

-7.1

-16.3

-5.4

12.9

84.2

33.2

-35.5

-8.3

-5.5

-3.7

-30.1

-62.1

-57.4

-141.2

-174.3

oilbodoni_num1 ING.qxd 27-05-2008 11:41 Pagina 12

13

Interview

Economy, in America, is now entering a new negativecycle mainly as a result of the high cost of oil.

Economists have discordant views. I believe that the Ame-rican economy has entered a slump period. In the next we-eks, once data have arrived, we will know it for sure. Ourconcern, though, is to understand which will be the outcomeon the world economy of an eventual recession. We have notyet seen the impact up to its extreme consequences that thesub prime loans crisis will have on many banks. Many ana-lysts agree that it will be necessary to wait one year beforebeing able to realize how deep this crisis is and what impactit will have, not only on the economy of America but on thewhole world. Of course, the demand for oil is a concern forus since - as you know - it is closely related to the world eco-nomy growth rate. Consequently, broadly speaking, oil de-mand will decrease in a situation of economic slump. I be-lieve that an important role will be played, in this connection,by the Chinese economy depending on it being struck by re-cession or not. Some economists do not agree because theyare convinced that the Chinese Gross Domestic Product re-lies more on the domestic market trend rather than export.In this case, considering that most of the oil demand comesfrom China, an eventual recession in the USA would notgreatly influence the world demand of oil. This is, in my opi-nion, the most likely scenario but there will be, for sure, quar-terly periods of highs and lows in the demand.

In the meeting at Cairo the topic has been again on anOpec for gas. What do you think?

In 2001, we established the Forum of Gas Exporting and Ma-nufacturing Countries at Tehran, Iran. The second meetingtook place here in Algeri. The forum aim was to exchangeideas and information and try to understand how to coope-rate to save money, by means of more efficient transporta-tion. This was the idea. Just before the opening of the mee-ting at Doha - last year I believe - president Putin said thata gas Opec could be of interest. The Emir of Qatar, our Pre-sident, and three Ministers basically said the same thing: itis quite difficult to understand how such an organization

could work. Actually, once the gas has been sold, it is not pos-sible to increase or decrease the volumes. Moreover, the priceof gas is linked to the price of oil and there is already an or-ganization-Opec- which is indirectly taking care - in someway - of the gas price pegging. An additional one would beof no use. This is what our Ministry said, but the meeting ofDoha has contributed to the formation of work groups forstudy on how to improve coordination within the Exportingand manufacturing Countries Forum and to fix a meeting atMoscow as soon as the results of such a study are available.This meeting should take place some time this year (the datehas not been fixed yet), perhaps July or November.

Practically you envisage a coordination, a synergy?A synergy or coordination already exists in terms of infor-mation exchange. There is cooperation among companies:between Shell and Sonatrach or between Eni and Sona-trach for such projects, like the one in Mali, for example.Agreements have been already made with Shell, Statoil andGazprom. However, as regards Gazprom, we only have pa-pers at the moment, no prospecting nor production activities.

Could you forecast which will be the big powers of oilextraction?

For oil? Sonatrach! I am sure that the international oil com-panies have some advantages. It is obvious that companies likeGazprom will play an important role. Oil companies like CNPC,Chinese, Petrol China, already play an important role, andothers like Petrobras - state-owned companies, you know, aregoing to play it soon . We are in a prominent position; SaudiAramco, which is becoming an international company, will re-ach us soon. Of course, Sonatrach is striving for an importantrole and is becoming international. International companieshave to cooperate more closely with domestic oil companies-as Eni is doing - because international companies own moretechnology, management and knowledge than domestic ones,but lack resources. Therefore, by combining these two things,the best results should be attained.

oilbodoni_num1 ING.qxd 27-05-2008 11:41 Pagina 13

he price of oil andthe freedom of apeople alwaysmove in oppositedirections. It is thefirst rule of ‘Petro-politics’, the poli-tics of oil, andcould be the axiomfor explaining ourera.When I happenedto hear presidentAhmadinejad ofIran say that theHolocaust was a

‘myth’, I couldn’t help asking myselfif he would have said it if the price ofoil had been 20 dollars a barrel in-stead of 60. And when I heard pre-sident Chavez of Venezuela tell theBritish prime minister Tony Blair to“go to hell”, and shout at his ownsupporters that the United States,supporters of free commerce in theAmerican area, “could go to hell”, Icouldn’t help asking myself if Chavezwould have said the same thing if theprice of oil had been 20 dollars abarrel instead of 60, and his countrywould have had to support itself bygiving private entrepreneurs an op-portunity rather than digging oilwells.Following events in the Persian Gulfin recent years, I’ve noticed that thefirst state in the Gulf to hold regular,free elections, also open to women,the first Arab state to initiate a fullreview of employment law to sup-port employment of its inhabitantsand reduce dependency on foreignmanpower, has been Bahrain. Bychance Bahrain is also the first Arabstate to deplete its oil reserves. Icouldn’t help asking myself if all thiswas a coincidence. Finally, when I saw the democraticactivists in Lebanon ward off the Sy-rian troops from their borders Iasked myself if it was by chance thatthe first, and only, democracy in theArab world didn’t have a drop of oil.

An experiment: try to express,graphically, the relationshipbetween the price of oil andrate of development, economicreforms, respect for civil rights.

The more I thought about these is-sues, the more it seemed clearer that

there had to be a correlation bet-ween the price of oil and the rate ofdevelopment, economic reforms, andthe respect of civil rights in certaincountries. This led to an experimentto try and quantify this relationshipgraphically, by showing the globalaverage for crude oil price on oneaxis, and the level of expansion orcontraction of the economic and po-litical freedom of a country on theother. This was done using the sameindicators as a research companysuch as Freedom House, i.e. numberof free and impartial elections, thenumber of newspapers which startup or are forced to close, the numberof arbitrary arrests, the number ofreform supporters elected to parlia-ment and the number of economicreforms interrupted or blocked, thenumber of privatised or nationali-sed industries etc.I will be the first to acknowledge thatwe’re not dealing with a scientificexperiment, because the growth anddecline of economic and politicalfreedom in a society can never beobjectively quantified. It is a fact, ho-wever, that, although there are manyinaccuracies, the graphics show astrong relationship between theprice of oil and the growth of free-dom, such significant growth that Iwould like to ignite the debate byannouncing the ‘First Law of Petro-politics’.This First Law of Petropolitics is asfollows: in the rich oil states the priceof crude oil and the development offreedom are always moving in op-posite directions. According to theFirst Law of Petropolitics, the morethe global average of crude oil pricesincrease, the more that freedom ofspeech, freedom of press, regularelections, independent judiciary sy-stem, the role of law, and indepen-dence of political parties erode. Thehigher the price of oil, the more thatthe leaders of the producing coun-tries become indifferent to what theworld says and thinks about them.Inversely, according to the First Lawof Petropolitics, the lower the price ofoil, the more that oil countries movetowards transparent political and so-cial systems, the more sensitive theyare to the voice of the opposition,and more disposed the become tocreating legal and educational esta-

blishments which favour people’s ca-pability, men and women, to com-pete, create new companies, and at-tract investment from abroad. Themore the price of oil decreases, themore producing countries becomesensitive to what the rest of theworld thinks of them.It is especially worth noting the con-nection between the price of oil andthe development of freedom today, inthe face of that which seems likestructural global growth of the price

of crude oil, which could have a ne-gative effect on world structures inthe post-Cold War period which wehave known until now. In otherwords, the price of crude oil shouldnow be a daily worry, not just for thetreasury minister, but also for thesecretary of state.In this analysis I mean oil countrieswhich not only depend on oil pro-duction for the bulk of their exportsand gross domestic product, butwhich also have weak state institu-

by THOMAS L. FRIEDMAN

Winner of three Pulitzer Prizes for his correspondencefrom Lebanon and Israel for the New York Times,Thomas Friedman has worked in the field of economicsand foreign affairs all his life, acquiring a wealth ofknowledge on countries in the Middle East, andpassionately studying phenomena which have spannedthe world economy over the years. Friedman was born in Minneapolis on 20th July 1953.In 1975 he graduated with distinction at the Universityof Brandeis, with a thesis on Mediterranean Studies,then studied for a Masters’ degree on the Middle East

at Oxford. Immediately after he started in the London office ofUnited Press International (UPI), where he worked as acorrespondent from Beirut from June 1979 to May 1981, the yearwhen he was taken on by the New York Times and was called toNew York. The journalist stayed in the USA for a year, and dealtwith finance, specialising in the countries of Opec, and moregenerally, on topics relating to oil. In April 1982 he was in Beirutagain as correspondent of the Times. Six weeks later Israelinvaded Lebanon. In June 1984, Friedman was transferred fromBeirut to Jerusalem, where he stayed until 1988, when theGuggenheim Foundation Fellowship commissioned him to write abook on his reflections on the Middle East.In June 1989, he published From Beirut to Jerusalem, whichremained on the New York Times bestseller list for almost twelvemonths, and was published in 10 different languages, includingJapanese and Chinese. In 1989 he received a new role inWashington as the Times’ head diplomatic correspondent; for thenext four years Friedman travelled far and wide, covering morethan 500,000 miles and recounting the end of the Cold War. Hethen went back to work in domestic politics as head correspondentin the White House and again in foreign affairs, as a columnist forthe New York Times. In 1999 his second book was published, The Lexus and the OliveTree: Understanding Globalisation, an attempt at understandingthe phenomena of globalisation from the point of view of farmersin the Amazon and young managers in Silicon Valley. Followingon were Longitudes and Attitudes: The World in the Age ofTerrorism (2002) and The World is Flat: A Brief History of the 21stCentury (2005), in which the author returns to the topic ofglobalisation, providing a snapshot of a planet in which distancesare no longer relevant, where it makes no difference where youare because the world has become completely transparent,accessible, practicable; it has become flat

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The dutch diseaseThomas L. Friedman illustrates the “First Law of Petropolitics”

There is a close relationship between profits from the price of oil andlevels of democracy. The lower the price of crude oil, the more the oilcountries move towards transparent political systems

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tions and completely authoritariangovernments. At the top of this listare Azerbaijan, Angola, Chad, Egypt,Equatorial Guinea, Iran, Kaza-khstan, Nigeria, Russia, Saudi Ara-bia, Sudan, Uzbekistan and Vene-zuela. (Countries which have a largequantity of crude oil but which arewell consolidated, with solid demo-cratic and economic institutions al-ready established before the oil wasdiscovered - for example Great Bri-tain, Norway and the United States -are not subject to the First Law ofPetropolitics).

Economists have beenhighlighting for some time nowthe negative impact that theabundance of natural resourcescan have on the economy andpolitics of a country.

They have called it ‘the Dutch di-sease’ or ‘the resource disease’. Itdevelops in the course of de-indu-strialisation which can arise fromthe sudden, fortunate discovery of anatural resource. This is what it wascalled in Holland in the sixties afterthe discovery of the enormous natu-ral gas reservoirs. In countries withthe ‘Dutch disease’, the value of mo-ney increases, thanks to the unex-pected influx of cash from oil, gold,gas, diamonds, or other natural re-sources. This ensures that exportsare not competitive while importsare very cheap. Cash-rich citizensstart to import like crazy - internalindustry is dismantled and de-indu-strialisation is quickly reached. The‘resource disease’ not only hits atan economic level, but also influen-

ces the politics of a country, inve-stments and educational priorities.Everything revolves around the flowof oil and who can benefit from it,and how much – not around compe-tition, innovation and production inthe real market.Some political scientists have stu-died how much an abundance, espe-cially of oil, can affect the democra-tic system. One of the mostsignificant analytical studies on thematter is that of Michael L. Ross, ofthe UCLA. By analysing the statisticsrelating to 113 countries between1971 and 1997, Ross concluded that“the reliability of a country on oil orother minerals destined for exporttends to make it less democratic.This phenomena is not caused byother types of export; furthermore itis not only limited to Arab states,the Middle East, or to sub-SaharanAfrica, or small countries”.Particularly interesting in Ross’s ana-lysis is the indication of specific me-

chanisms through which excessivewealth from oil affects democracy. Inthe first place, states Ross, there isthe ‘taxation effect’; governments inthe oil-rich countries tend to alle-viate the social pressures whichwould otherwise lead to greater re-sponsibility for those governing, andthe citizens’ requirement for morerepresentation by citizens. Put ano-ther way: if the motto of the Ameri-can Revolution was ‘no tax withoutrepresentation’, the motto of oil au-thoritarianism is ‘no representationwithout tax’. The regimes sustainedby oil, which do not need the peo-ple’s consent to survive simply be-cause they can drill another oil well,do not need to listen to their citizensor those who represent them either.The second mechanism throughwhich oil affects democracy, arguesRoss, is the ‘spending effect’. Wealthfrom oil encourages the increase ofspending on welfare which in ex-change attenuates pressure towardsdemocratisation. The third mecha-nism which Ross cites is ‘the effect ofgroup formation’. When oil ensuresunexpected income for an authorita-rian state, the government can use itto prevent the formation of indepen-dent social groups – groups whichwould be more inclined to demandpolitical rights. Furthermore, againaccording to Ross, an excessiveamount of income from oil can causea ‘repression effect’ because it allowsgovernments to spend a lot on police,national security, and secret servi-ces, which can be used to squash de-mocratic movements. Finally, Rossidentifies a ‘modernisation effect’. A

massive influx of wealth from oil candecrease social pressure for types ofemployment specialisation, urbani-sation, and for higher levels of edu-cation; conditions which normallyaccompany greater economic deve-lopment and determine more divi-ded public opinion, more ability inself-organisation, in doing businessand communicating, and self-provi-sion of centres of power.After 11th September the price ofoil went from 20-40 dollars per bar-rel to 40-60 dollars. This jump inprice was partly due to insecurity inthe global oil market caused by wa-ves of violence in Iraq, Nigeria, In-donesia and Sudan; but it seemedeven more likely to be as a conse-quence of that which I term as the‘flattening’ of the world and the un-prepared entry onto the market of 3billion new consumers, from China,Brazil, India and the ex-Soviet em-pire, who all wanted a house, a car,a microwave and a refrigerator. Theappetites of these people and theirenergy requirements are enormous.This is already, and will continue tobe, a constant cause of pressure onthe price of oil. Without drastic sa-ving plans in the West, or the disco-very of an alternative to fossil fuels,we are destined to move towards anincrease in the near future.

With oil wealth increases,leaders of authoritarianregimes have increasingamounts of money to spend onrepressing opposition, buyingapproval, and ignoringinternational pressure.

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Feature

A sudden discoveryof important naturalresources can result in de-industrialisation and heavily influence thepolitics and society in a country

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Feature

Politically this will mean that a wholegroup of oil countries with weak in-stitutions or with completely autho-ritarian governments will probablysee a reduction in freedom and anincrease in corruption and authori-tarianism. The leaders of these coun-tries can plan on having significantincreases in available income forstrengthening security forces, bri-bing the opposition, buying votes orpublic approval, and ignoring inter-national regulations and conven-tions. It is sufficient to read the new-spapers any day to see the evidence.As an example consider an article inthe Wall Street Journal in February2005, on how the Mullahs of Teheran(who are now loaded with moneythanks to such high oil prices) areturning their backs on foreign inve-stors, instead of encouraging them.Turkcell, a Turkish mobile phoneoperator, signed an agreement withTeheran to construct the first privatetelephone network in Iran. An at-tractive agreement - Turkcell agreedto pay Iran 300 million dollars for thelicence and to invest 2 billion and250 million dollars in the enterprise,creating 20 thousand jobs. However,the parliamentary Mullahs froze thecontract, maintaining that it couldencourage espionage against Iran.Ali Ansari, an expert in Iranian is-sues at St. Andrew’s University inScotland, commented that Iraniananalysts have been discussing eco-nomic reforms for ten years, but“now the situation has deterioratedsignificantly”, continuing that “nowthey have all this money for the highoil prices and they don’t have anyneed to reform the economy”.True with regards to Iran is a com-ment published by the Economist:“nationalism is easier on a full sto-mach and Mr. Ahmadinejad is theonly President who will be luckyenough to collect 36 billion dollarsnext year from oil exports, in orderto buy loyalty. The government haspromised to build 300 thousand hou-ses, two thirds of which will be out-side the large cities, and to keep theenergy subsidies which amount toan exorbitant 10 percent of the grossdomestic product”.Or consider the drama which is ta-king place in Nigeria. There it is sti-pulated that the President will havea four-year mandate which can onlybe repeated once. President Oluse-gun Obasanjo won power in 1999 af-ter a period with a military gover-nment, and was elected by popularvote in 2003. When he seized powerfrom the Generals in 1999, Obasanjomade news by investigating the vio-lation of human rights by the Nige-rian military, releasing political pri-soners, and even trying to make areal attempt at eradicating corrup-tion. This was happening when oilwas 25 dollars a barrel. Today, withoil at 60 dollars a barrel, Obasanjo istrying to persuade the Nigerian Par-liament to change the constitutionto allow him a third mandate. A lea-der of the Nigerian opposition,Wunmi Bewaji, stated that they were

offered million dollar wads of moneyto vote for the extension of Obasan-jo’s mandate. Clement Nwankwo,one of the most committed suppor-ters of human rights, said that sincethe price of oil started to rise, “civilliberties have seen a significant de-cline – people have been subjected torandom arrest, opponents have beenkilled, and democratic institutionsquashed”. Oil accounts for 90% ofNigeria’s exports, added Nwankwo,and this partly explains why therewas a sudden increase in the kid-napping of foreign oil employees inthe wealthy oil area in the Nigerdelta. The fact is that many Nige-rians think they have been robbed ofthe oil, because only a small amountof the proceeds benefit Nigerians.In oil states it is often the case thatpolitics revolve around those whocontrol the wells, but public opinionis acquiring a distorted concept ofthe idea of what constitutes ‘deve-lopment’. If the population is poorand the leaders are rich, it is not be-cause the country has failed in pro-moting education, innovation, therole of law, and business relation-ships. “If Nigeria didn’t have oil, theentire political equation would bedifferent”, stated Nwankwo; “incomewould not be from oil and therewould be a problem of economic di-versification to be faced by privatecompanies, and people would deve-lop their own creativity”. In actual fact, the relationship bet-ween the price of oil and the in-crease in freedom in some countriesis so close that any political classcould be distracted from the path ofreform by a hike in the price of crudeoil. Look at Bahrain, which knowsthat oil stocks are being depletedand has become a case study on howthe fall in income from oil can spurreforms. Not even this country wascapable of resisting the temptation toraise the price of oil. “We are seeingan opportune moment now thanks tothe price of oil, and this can makethe authorities feel more secure”,stated Jasim Husain Ali recently,who is the head of the departmentfor economic research at the Uni-versity of Bahrain. “However, this isa dangerous trend because incomefrom oil is not sustainable. Diversifi-cation in Bahrain could be sufficientwith respect to Gulf standards, butnot with respect to internationalstandards”. It is not surprising thata young Iranian journalist once saidto me whilst walking through Tehe-ran, “If only we didn’t have oil wecould be like Japan”.

Low oil prices at the end of theeighties led to the collapse ofCommunism, even more sothan Reagan policies. Butthings have changed even inRussia.

With all due respect for Ronald Rea-gan, I don’t believe the collapse ofthe Soviet Union was completelydown to him. Obviously there weremany causes, but the global fall inthe price of oil at the end of the ei-

ghties and early nineties certainlyhad a key role. (When the SovietUnion officially dissolved in 1991,the price of oil per barrel wasaround 17 dollars). And the low oilprices certainly helped to guide thepost-Communist government of Bo-ris Yeltsin towards greater respectfor law, more transparency to theoutside world, and greater care of le-gal establishments, as was requiredby global investors. Then came theRussian president, Vladimir Putin.Think of the difference in Putin whenoil was 20-40 dollars a barrel andnow when it is 40-60. In the firstcase we had that which I call ‘Putinversion 1’. President Bush stated af-ter their first meeting in 2001 that hehad looked into the soul of a manand realised he could trust him. IfBush looked into the soul of Putin to-day, Putin version 2, with 60 dollarsa barrel, he would see a very blacksoul, black as oil. He would see howPutin has used his unexpected for-tune from oil to swallow (nationalise)the enormous Russian oil companyGazprom, various newspapers andtelevision networks, and many ty-pes of other Russian companies andinstitutions which were previouslyindependent.In the period of the lowest oil pricesin the early nineties, even the Araboil countries such as Kuwait, SaudiArabia and Egypt at least spokeabout economic reforms or smallsteps towards political reform. Butas soon as prices started to rise, theentire reform process was halted,especially in terms of politics.

he constant growth of we-alth from oil could reallydistort the entire interna-tional system and the na-ture of the world itself inthe post-Cold War period.When the Berlin Wallcame down there was a

general faith in an unstoppable waveof free markets and democratisation.The proliferation of free elections inthe following decade made that wavemore concrete, but now we are se-eing an unexpected counter-wave ofoil-authoritarianism, made possibleby oil at 60 dollars a barrel. All of asudden, regimes such as those inIran, Nigeria, Russia, and Venezuela,are backtracking with regards to thatwhich seemed an inevitable processof democratisation, with elected au-

tocrats that use the new wealth fromoil to ensure power, buy the opposi-tion and supporters, and extend statepower into the private sector, justwhen many thought that finally theywere loosening their grip. The un-stoppable wave of democratisationwhich came after the fall of the Ber-lin Wall seems to have found retalia-tion in the black seas of petro-autho-ritarianism.Even though petro-authoritarianismdoesn’t represent the wide spectrumstrategy and economic threat whichCommunism meant for the West, inthe long term it could however cor-rode world stability. It is not onlysome of the worst regimes in theworld which will have extra moneyfor longer than ever to make thingsworse, but respectable, democraticcountries, like India and Japan, willbe forced to kowtow or close theireyes to the behaviour of petro-au-thorities such as Iran or Sudan, be-cause of the heavy dependence onoil. This can’t be a good thing forworld stability.

Any democratic defencestrategy will be destined to failwithout credible, sustainableinitiatives for knocking downoil prices.

Let me confirm that I know the rela-tionships suggested by these graphsare not perfect and, without a doubt,there are exceptions which the rea-der could certainly highlight. Howe-ver, I am convinced that the graphsshow a general trend which is con-firmed in the news every day: the in-crease in the cost of oil clearly has anegative impact on the path to free-dom in many countries, and whenthere are enough countries andenough negative impact, world poli-tics starts to become poisoned. Even if we can’t influence the oil sup-plies of any country we can affect theprice of oil by changing the quantityand type of energy which we use.When I say “we” I mean the UnitedStates to some degree, which consu-mes about 25 percent of the world’senergy, and the oil importer countriesin general. Thinking about how tochange our models of energy con-sumption to push oil prices down isnot a hobby for enlightened environ-mentalists any more, or for behavingvirtuously on a personal level. Now itis imperative for national security.Consequently, any democratic de-fence strategy in America which doe-sn’t include a credible, sustainablestrategy for finding alternatives tooil, and to knocking down the priceof crude oil, is totally senseless anddestined to fail. Today it doesn’t mat-ter what position you have in foreignpolitics; you cannot be either an ef-fective realist in foreign politics, oran effective idealist in the defence ofdemocracy, without also being an ef-fective energy environmentalist.

Reprinted with permission from Foreign Policymag/giu 2006. www.foreignpolicy.com

© (issue year) by the Foreign Policy.

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irreversible,unreliable regimes

will increasinglyhave greater

means for alteringinternational

structures

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17

face to face

For how much longer?

Peak oil

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ne thing is certain:oil does notreproduce, andsooner or later it willrun out. And sooneror later the oilextracted worldwidewill not be enough to

satisfy the needs of allhumanity, needs that in themeantime are continuouslygrowing. It will be themoment of the peak oil: themaximum rate of oilproduction. Since we dependon oil for everything, if wereach that deadlineunprepared the repercussionsdue to oil shortage will bedramatic from both aneconomical and socio-politicalpoint of view.Up to this point, everyoneagrees. But concerning whenthe peak will arrive, and howand when the predictableconsequences will be faced,

specialists appear to be quitedivided. The catastrophistswho speak of immediate riskare contrasted by moreoptimistic experts who believethe problem is many yearsaway. In between, others whothink there is still a margin oftime, but who feel there isnonetheless an urgency toimplement the technologicaland social changes necessaryto strongly reduce ourdependency on oil. A crucial and distressingproblem for life on earth; aproblem we cannot avoid, butthat instead is minimized bypublic opinion, perhaps due tothe continuous false alarms ofthe past years. “Oil” has facedthis problem from its veryfirst issue with the typicalattitude that stronglycharacterises our magazine: acommitment to objectiveinformation, with the

ambition of awakening publicopinion, and stimulating themanagerial class that isresponsible for makingdecisions. We did it allowingsome of the field’s mostqualified international expertsto illustrate their opinions. The starting point for thisbroad discussion was thethesis expressed by RobertHirsch, considered one of themost accredited experts in thefield of energy problems, anddesignated by the U.S.Department of State to guidethe group of experts that haveedited the report “Peaking ofword oil production: impacts,mitigation, and riskmanagement”. Thisdocument, widely publicisedat the time of its publicationand absolutely still relevant,was adopted as our mainreference for presenting thevarious aspects of the ”peak

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oil” topic. In the article we areconsidering, written after thecirculation of the Report,Hirsch sounds the alarm: it’simpossible to predict whenthe peak will arrive, but thesignals regarding the world oilproduction trend are notencouraging, to the extent(says Hirsch) that oil peakingmay take us by surprise eventoday. It is therefore urgent tolaunch a radical energyconsumption reform, since atleast twenty years arerequired for it to be fullyeffective. This point of view wasfollowed by the opposingopinions of other greatparticipants of a debate thathas been going on for years.Vijay V. Vaitheeswaran,correspondent for theEconomist for Energy and theEnvironment, in an articlepublished in 2005 – right after

the report from Hirsch – holdsa much more reassuringproposition of the future of oilproduction. For his part,Leonardo Maugeri, strategyand development manager inEni, warns us against hurrieddisastrous predictions, andunderlines instead thefinancial implications andpolitical risks concerning oilproduction in this phase. Ofgreat importance, as well, thevoice of Chakib Khelil, who inaddition to being Algerian oilminister is also president ofOpec and exponent of thegreat producer countries.Rather than an oil productionpeak, he feels we should feara peak in demand: themoment in which the worldwill start to reduce the needfor oil and move on to othertypes of energy resources. The outlook of production andworld oil markets may be

heavily influenced by theunknown factor regarding theexplosive growth of some newactors of the internationaleconomical scene. The boomof countries such as Chinaand India and their thirst foroil is already greatlyinfluencing the oil market.Federico Rampini,correspondent from Beijingfor the daily paper LaRepubblica and observer ofAsian affairs, explains howthose countries are facing thepeak oil issue.A vast panorama is thereforeavailable: information,different points of view,comments. But no finalanswer: that’s not why we’rehere. Instead, we want to helplearn more about a vital issuefor everyone, and perhaps tomake a contribution to thoseresponsible for makingdecisions. Quickly.

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face to facePeak oil

d without oil?

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he era of abundantlow cost oil is co-ming to an end.The good news isthat there are newsolutions ready tomitigate the im-pact. The badnews is, without ti-mely measures,the damage to theworld economywill by severe andlong-term.Oil is the lifebloodof modern civiliza-

tion. It fuels the vast majority of theworld’s mechanized transportationequipment, and is a primary com-ponent of pharmaceutical, agricul-tural, and plastic products, as wellas many others that are essential tomodern life. The earth's generousendowment of oil has allowed eco-nomic growth for over a century,but this period of plenty is coming toan end. This article describes the nature ofthe problem, the options for redu-cing impact, and the deadlines thatneed to be faced. The exact moment of peak produc-tion is unknown; some think that itwill happen soon, others believe thatten years or more are required. Inany case, the date is almost irrele-vant since the measures required toface the peak will definitely needmore than ten years to be effective,given the world’s enormous oil con-sumption.

The output of every oilreservoir rises immediatelyafter discovery, reaches apeak and declines thereafter.The same will happen on aworld scale. And it mighthappen soon

The logic of the world’s oil produc-tion peak follows the fact that theoutput of every oil reservoir risesimmediately after discovery, reachesa peak and declines thereafter. Oilreservoirs have lifetimes typicallymeasured in decades, and in normalcircumstances peak production isoften reached a decade or so afterdiscovery. Peaking is a reservoir’smaximum oil production rate, whichtypically occurs after roughly half ofthe recoverable oil in a reservoirhas been produced. In many ways,what is likely to happen on a worldscale is similar to what happens toindividual reservoirs, because worldproduction is the sum total of pro-duction from many different reser-voirs.Because oil is usually found thou-sands of feet below the surface andbecause oil reservoirs normally donot have an obvious surface signa-ture, oil is very difficult to find. Ad-vancing technology has greatly im-proved the discovery process andreduced exploration failures. Ne-vertheless, oil reservoir discoveryhas been declining for over ten ye-ars.“Reserves” is an estimate of theamount of oil in a reservoir that canbe extracted at an assumed cost.Thus, a higher oil price outlook of-ten means that more oil can be pro-duced, but geology places an upperlimit on price-dependent reservesgrowth. Reserves estimates are revised pe-riodically as a reservoir is developedand new information provides a ba-sis for refinement. Reserves estima-tion is a matter of gauging howmuch extractable oil resides in com-plex rock formations that exist typi-cally one to three miles below thesurface of the ground, using inhe-rently limited information. Reserves

Oil production peaking “is a really frighteningproblem”. This is how Robert Hirsch recentlycommented on the issues concerning the peak of oilproduction. “This problem is unique in its difficulty”,continued the advisor, “and the more you reflectupon it, the further you analyse the numbers, themore it appears to be one of the most difficult tosolve”. The reason, explained Hirsch, is that theissue presents “enormous risks for our economiesand our civilisation”. Hirsch may be considered oneof the leading experts on problems regarding oil

peaking, having covered over the years numerous roles ofprestige in the sector’s largest companies. After obtaining aPh.D. in engineering and physics at the University of Illinois,he directed numerous technological programs in oil andnatural gas exploration, oil refining, synthetic fuels, anddefence technologies. In the 1970s, he was part of the fusion energy program in theU.S. He founded the ARCO power technologies company andAPTI, now owned by Bae System. He has served on numerousadvisory committees related to energy development, and wasthe lead author of the report ‘Peaking of world oil production:impacts, mitigation and risk management’ (2005), written forthe Unites States Department of Energy. He was recently anenergy program advisor for the Science ApplicationInternational Corporation (SAIC), and manager of the syntheticfuel research laboratory in Exxon. He holds 14 patents and hasproduced over 50 publications in the energy field. He iscurrently a Senior Energy Advisor at MISI (ManagementInformation Services Inc).

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In 10 or 20 years...maybe today

The Hirsh report launches a warning: oil could run out…

It is impossible to predict when crude oil reserves will no longer be able to keep up with global demand. It could even happenimmediately. Urgent, radical choices for rationalising consumption,especially with regards to transport

According to the author of the report on oil production for the American

government by 2025 oil requirements will have grown by 50% necessitating

increasingly greater production, but – despite technological

processes – there has been a decline in the discovery of new

reserves over the last few decadesì

Tby ROBERT

HIRSCH

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estimation is a bit like a blindfoldedperson trying to judge what thewhole elephant looks like from tou-ching it in just a few places. It is notlike counting cars in a parking lot,where all the cars are in full view.Specialists who estimate reservesuse an array of methodologies and agreat deal of judgment. Thus, diffe-rent estimators might calculate dif-ferent reserves from the same data.Sometimes politics or self-interestinfluences reserves estimates, e.g.,an oil reservoir owner may want ahigher estimate in order to attractoutside investment or to influenceother producers.Reserves and production should notbe confused. Reserves estimates arebut one factor in estimating futureoil production from a given reser-voir. Other factors include produc-tion history, understanding of localgeology, available technology, oil pri-ces, etc. An oil field can have largeestimated reserves, but if the field ispast its maximum production, theremaining reserves will be producedat a declining rate.The decline may sometimes be slo-wed down, but the return to a pro-duction peak is impossible. This fun-damental rule is often not fullyunderstood by the those who arenot familiar with oil production.

According to predictions,world oil demand is expectedto grow 50 percent by 2025

To meet that demand, ever-larger vo-lumes of oil will have to be produced.

Since oil production from individualreservoirs grows to a peak and thendeclines, new reservoirs must becontinually discovered and broughtinto production to compensate forthe depletion of older reservoirs,and satisfy new demand. If largequantities of new oil are not disco-vered and brought into productionsomewhere in the world, then worldoil production will no longer satisfydemand. Peaking means that therate of world oil production cannot

increase; it does not necessarilymean though that production willinterrupt unexpectedly becausethere will still be large reserves re-maining.The peaking of world oil productionhas been a matter of discussionfrom the beginning of the modernoil era in the mid-eighteenth cen-tury. In the early days, little wasknown about petroleum geology, sopredictions of peaking were no morethan guesses without basis. Over

time, geological understanding im-proved dramatically and guessinggave way to more informed projec-tions, although the knowledge baseinvolves numerous uncertaintieseven today. Some experts think that oil produc-tion peaking may be very close.Others believe that we may still haveover a decade of abundance, as isthe opinion for example of DanielYergin of Cambridge Energy Rese-arch Associated.

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Peak oilface to face

Billions of barrels

1940 2000

40

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OIL CONSUMPTION EXCEEDS RESERVES ADDITIONS

The difference between the annual additions of oil reserves and oil consumption. It has been clear for some yearsnow that the discovery of new oil fields does not compensate for world consumption

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n the last century oil consumption has been inexorably linkedto population growth, industrial development and economicgrowth. Worldwide, this relationship are not expected tochange in the immediate future. Even though the USconsumes more oil than any other country – around 20MMb/day – it still accounts for just 26 percent of world

production, compared to the 46 percent of world production thatwas consumed by the US in 1960. As the chart shows, WesternEurope is currently the second biggest consumer (18%), followedby Japan (7%), China (6%) and the FSU (5%), and the remaining38% of consumption of production is divided between over 150other countries

World Oil Consumption, 1960-2025Predicting energy consumption is made difficult by the manycomplex factors that influence supply and demand. We haveapplied the forecasts of future oil demand released by the USEnergy Information Department (EIA).The table summarises the EIA statistics for the 2001-2025forecasts, comprising the 24-year projections per country or groupof countries for oil consumption, GDP and population.

IPossible future oil demand

22number

one

face

to fa

ce

Reaching the peak means that

the level ofproduction cannot

increase but itdoesn’t mean

that production will suddenly run

out There will still be ample

reserves to draw on and

new technologies to apply

Billions of barrels/day125

100

75

50

20

0

1960 1970 1980 1990 2000 2010 2020 2025

Other

ChinaU.S.A.FSUWestern EuropeJapan

Reference Projections, 2001-2025(Percentage of average annual difference)

Oil GDP Populationconsumption (Con. $)

U.S.A. 1.5 3.0 0.8Western Europe 0.5 2.0 0.1China 4.0 6.1 0.5FSU 2.1 4.2 -0.2Japan 0.3 1.7 -0.1Other 2.0 4.0 1.3World 1.9 3.0 1.0

oilbodoni_num1 ING.qxd 27-05-2008 11:41 Pagina 22

Recently Opec has reassured theworld that oil supplies will continuein great quantity, but even this po-sition is slowly changing. For exam-ple, some Opec countries are star-ting to observe that the reserves willnot be sufficient to satisfy world ne-eds ten to fifteen years from now.These assertions correspond to thequestions raised, regarding SaudiArabian reserves, by Matthew Sim-mons in his book “How reliable areSaudi production and reserve esti-mates?”Oil is classified as “Conventional”and “Unconventional.” Conventio-nal oil is typically the highest quality,lightest oil, which is extracted withcomparative ease and costs less toproduce. Unconventional oils areheavy, often tar-like. They are notreadily recovered since productiontypically requires a great deal of ca-pital investment and supplementalenergy in various forms. For thatreason, most current world oil pro-duction is conventional oil.

Oil production is declining in33 of the 48 major producingcountries. And there is littlereason to expect an increasein the discovery of newreservoirs

In the past, higher prices led to in-creased estimates of conventionaloil reserves worldwide. However,

this price-reserves relationship hasits limits, because oil is found in di-screte packages (reservoirs) as op-posed to the varying concentrationscharacteristic of many minerals.Thus, at some price, world reser-ves of recoverable conventional oilwill reach a maximum because ofgeological fundamentals. Beyondthat point, insufficient additionalconventional oil will be recoverableat any realistic price. This is a geo-logical fact that is often misunder-stood by people accustomed to dea-ling with hard minerals, whosegeology is fundamentally different. Oil companies and governmentshave conducted extensive explora-tion all over the world, but their re-

sults have been disappointing fordecades. If recent trends hold, thereis little reason to expect an increasein the discovery of new reservoirs .Another fact to keep in mind is thatoil production is declining in 33 ofthe 48 major producing countries.Exploration for and production ofpetroleum has been an increasinglymore technological enterprise, be-nefiting from more sophisticated en-gineering capabilities, advancedgeological understanding, improvedinstrumentation, greatly expandedcomputing power, more durable ma-terials, etc. Today’s technology al-lows oil reservoirs to be more rea-dily discovered and better assessedsooner than before. Some econo-

mists therefore expect that higheroil prices and improved technolo-gies will continue to provide ever-in-creasing oil production for the fore-seeable future. To gain some insightinto the effects of higher oil pricesand improved technology on oil pro-duction, let us briefly examine rela-ted impacts in the lower 48 US sta-tes. This was one of the world’srichest, most geologically varied,and most productive up until 1970,when production peaked and star-ted to decline. The figure shows oilproduction compared with pricesand technology. In constant dollars,oil prices increased by roughly afactor of three in 1973-74 and ano-ther factor of two in 1979-80.

A growth of 4% per year is projectedfor oil consumption in China, andprojections indicate that in 2025China will be the world’s secondbiggest consumer of oil, absorbing11% of world consumption. Secondplace in the speed of growth inconsumption is held by the FSUcountries, with an average increase inconsumption of over 2% per year.For the remaining big consumers,including the US, Western Europeand Japan, in the 24 year period agrowth in consumption is predictedthat is less than or equal to the worldaverage. In the US it is predicted thatoil consumption will increase at arate of 1.5% per year, and that by2025 US oil consumption of theworld’s oil will have fallen to 23%(29.7 MM b/day), while the WesternEuropean share will fall to 13%(14.4 MM b/day). And the growthshare of oil consumption of themany countries included in the“Other” group, including India,Mexico and Brazil, is forecast atbetween 10 and 30% over the worldaverage. By 2025 this group willrepresent 43% of consumption ofthe world’s oil.In other words, in the EIA referencecase, the world oil consumption of80 MM b/day in 2003 is forecast toincrease to 121 MM b/day by 2025,with the biggest growth in countriesother than the US, Japan or WesternEurope. Annual world demand for oilfor that period is estimated at 1.9%.

0

2,000

4,000

6,000

8,000

10,000

12,000

10,078 9999

7471

43563729

3477 3311 31242614 2558 2353 2293 2194 2137 2118

1853 1697 16561384 1259

12.012.1National percentage of total world production

YEAR 2007 (thousand barrels/day)Crude and non conventional oil, natural gas liquids

5.29.0 4.24.5 3.84.0 3.13.1 2.82.8 2.62.6 2.22.5 2.02.0 1.51.7

Russi

a

Saud

i Arab

ia

United

State

s

Iran

China

Mexico

Canad

a

United

Arab Em

irates

Vene

zuela

Norway

Nigeria

Kuwait

Algeria

Brazil

Iraq

Libya

Angola

United

Kingdo

m

Qatar

Kazakh

stan

0

5,000

10,000

15,000

20,000

25,000

21,174

7483

4985

2790 24822780 2340 2207 2197 2046 1947 18331230

2348

9761775

1185 991

8.724.6National percentage of total world production

YEAR 2007 (thousand barrels/day)

3.25.8 2.93.2 2.72.7 2.62.6 2.32.4 2.12.1 1.91.9 1.41.4 1.11.2

India

German

y

United

State

s

Japan

China

Russi

a

Canad

a

South

Korea

Saud

i Arab

ia

Mexico

Franc

e

Iran

Indon

esia

Brazil

Singa

pore

United

Kingdo

m

1676Ita

ly

1613Sp

ain

Netherl

ands

Taiwan

OIL CONSUMPTION - THE FIRST TWENTY COUNTRIES IN THE WORLD

OIL PRODUCTION - THE FIRST TWENTY COUNTRIES IN THE WORLD

23

Peak oilface to face

Eni - World Oil&gas Review

Eni - World Oil&gas Review

oilbodoni_num1 ING.qxd 27-05-2008 11:41 Pagina 23

In light of this experience, itis unlikely that high pricesand improved technology willyield higher oil production

Beyond huge oil price increases, the1980s and 1990s were a golden ageof oil field technology development,including practical 3-D seismic, eco-nomic horizontal drilling, and dra-matically improved geological un-derstanding. Nevertheless, as shownin fig. 2 , the production in the lower48 states still trended downward,showing no pronounced responseto either price or technology. In lightof this experience, there is good rea-son to expect that an analogous si-tuation will exist worldwide afterworld oil production peaks: higherprices and improved technology areunlikely to yield dramatically higherconventional oil production.Various individuals and groups haveused available information and geo-logical estimates to develop projec-tions for when world oil productionmight peak. As stated in the inset atthe side, many believe that this peakwill be reached within ten years.

Reduced transportation fuelconsumption, new products,improved recoverytechniques: the propositionsfor coping with peak oil

A recent analysis of the Departmentof Energy has tried to answer thequestion of what can be doneagainst oil peaking. Current or up-coming technologies were conside-red, regarding:1 improvement of transportationfuel consumption2 heavy oils and oil sands3 coal liquids4 improved oil recovery5 gas to liquidsIt was soon very clear that effectivemeasures depend on the implemen-tation of huge projects and radicalchanges as fast as possible. This hasfocalized attention on available te-chnologies that can still be impro-ved. Instead, new technologies thatrequire further research and deve-lopment will be extremely impor-tant long-term, but not being cur-rently accessible means that theirapplication is still a supposition.

An analysis was performed to ou-tline a worldwide crash program. Three dates have been emphasized: 1. when the peak occurs2. ten years before the peak3. twenty years before the peak

Avoiding the dramatic crisisdue oil shortage is possible,but it’s necessary to acttwenty years in advance

The exact date of the peak has beenleft undetermined due to the rele-vant differences among experts. Theresults of the different scenarioshave produced the following con-clusions:– waiting for the peak to occur be-

fore intervention would leave theworld with an energy deficit formore than twenty years

– intervening ten years before the

peak would help, but would no-netheless cause a decade of sup-ply shortfall

– intervening twenty years beforethe peak allows to avoid any shor-tage of resources.

The reasons behind such long pe-riods are due to the dimensions ofoil consumption; a factor that is of-ten underestimated in a worldwhere oil abundance was conside-red certain for a long time. There-fore, if the measures against thepeak are insufficient or arrive toolate, the balance between supplyand demand must be reachedthrough a massive reduction of thedemand, which will consequentlycause a serious economic crisis. Viceversa, initiating mitigation on timewould allow us to minimise econo-mical impact.To better comprehend the characte-ristics of the peak, a number of re-gions and countries that have al-ready surpassed this phase wereanalyzed. Areas that have alreadyexperienced notable production pea-king, not followed by important po-

24number

one

face

to fa

ce

Production

Billions of barrels/years

Price

dollarsper barrel

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0

70

60

50

40

30

20

10

01950 1960 1970 1980 1990 2000

Peak in the 1999

Production MM bpdPercentage onthe maximum

1994 1996 1998 2000 2002 2004

3.0

2.9

2.8

2.7

2.6

2.5

2.4

100%

95%

90%

85%

UNITED STATES: HIGH PRICES ARE NOT DRIVING PRODUCTION

GREAT BRITAIN: A COLLAPSE AFTER THE PEAK

A comparison between the annual variations of oil prices and oil production in the U.S Lower 48states. Price increase (tripled in 1973-74 and doubled in 1979-80) is in no way followed by aproduction increase. In light of this finding, there is no reason to expect that a different situationwill exist worldwide.

Hirsh believes the decline of worldproduction is the

real problem to focus on

in the immediatefuture The states

will have to takeurgent and promptaction to avoid theworst The peak

is a problem of liquid fuels:

it is not an energy crisis

After peaking in Great Britain, oil production has gone through a totaldownfall. Conjectures of a gradual loss or even a flat trend formulated bysome observers have been denied.

oilbodoni_num1 ING.qxd 27-05-2008 11:41 Pagina 24

litical or pricing measures are Te-xas, North America, Great Britainand Norway. Three other countriesthat have reached the peak, butwhose maximum production wasless significant, are Argentina, Co-lombia and Egypt.In all the cases examined it was notclear that production was reachingits peak until a year before it occur-red; this means that the trend ofproduction before the peak does notsupply any long-term signals of risk.In most cases the peak resembles asharp drop rather than a progres-sive decline, much less the levellingat maximum production that manyspecialists hoped for. In some casesafter peaking production declinedrapidly, such as in Great Britain.The shape of the production peak istherefore not at all obvious, but if itfollows the trend of these countriesand regions it’s fair to say that theworld will have less than one year’snotice.

It’s mainly a liquid fuelsproblem. Motor vehicles,aircraft, trains, and ships

simply have no readyalternative to liquid fuels

Oil peaking represents a liquid fuelsproblem, not an “energy crisis” inthe sense that term has been used.Motor vehicles, aircraft, trains, andships simply have no ready alterna-tive to liquid fuels. Non-hydrocar-bon-based energy sources, such assolar, wind, photovoltaics, nuclearpower, geothermal, fusion, etc. pro-duce electricity, not liquid fuels, sotheir widespread use in transporta-tion is at best decades away. Accor-dingly, mitigation of declining worldoil production must be narrowly fo-cused. It is possible that the productionpeak will not materialise for ano-ther ten years or more, but it mayalso occur in this precise instant.There will be no certainty until afterit happens, so today the world is fa-ced with an unprecedented risk ma-nagement problem. On one side,massive mitigation initiated ten yenearlier than required may turn outto be premature. On the other, ifpeaking is imminent, failure to ini-

tiate timely mitigation could pro-duce immediate social and econo-mic costs to the world.The two risks are asymmetric:

– Mitigation actions initiated pre-maturely will be costly and couldresult in a poor use of resources.

– Late initiation of mitigation willsurely result in severe economicalconsequences.

The world has never confronted aproblem like this. Risk minimiza-tion requires the implementation ofmitigation measures well prior topeaking. Since it is uncertain whenpeaking will occur, the challenge forwho must decide is indeed signifi-cant. Gathering consensus to face astill invisible disaster is definitelymore difficult than having to faceone that has already taken shape.

Transactions from wood tocoal and coal to oil weregradual. This time it will be different:oil peaking will be abruptand revolutionary

The world’s economic developmentin the past century was fundamen-tally determined by abundant andlow cost oil. Other energy transitions (wood tocoal and coal to oil) were gradualand evolutionary; oil peaking willbe abrupt and revolutionary. Theworld has never faced a problemlike this. Without massive mitiga-tion more than a decade before thefact, the problem will be pervasiveand will not be temporary.As stated, oil peaking represents aliquid fuels problem, not an “energycrisis” in the sense that term hasbeen usually used. As a conse-quence, the decline of world pro-duction is the problem to concen-trate on in the near future.Governments throughout the worldmust take timely initiative, and itmay be already too late to avoid con-siderable hardship or worse. Hesi-tating countries will suffer the con-sequences of losing an opportunity,because in every crisis there is al-ways an opportunity for those ca-pable of deciding.

25

Peak oilface to face

oilbodoni_num1 ING.qxd 27-05-2008 11:41 Pagina 25

s the world about toremain without oil?It’s unlikely. Accor-ding to official esti-mates, there are,underground, moreverified oil reservestoday than therewere thirty yearsago. Despite the ye-ars of squanderingoil and countlessend-of-the-worldpredictions, theworld is not aboutto go without oil.

Oil is certainly a non-renewable re-source and therefore, by definition,will run dry one day. But we won’t bearound for that day, notwithstandingthe increasing chorus of “oil peakproponents” that say we have al-ready reached peak production.Their point of view, really, is basedon the idea that world oil resourcesare fixed and that technology is una-ble to make advances. None of theseassertions is true. Innovative indu-stries are investing in ever more ad-vanced technologies regarding ex-ploitation of reserves, pushing the“oil peak” into the future, the mo-ment after which production willinexorably begin to dwindle. Alreadytoday, thanks to new technologicaladvances, the global average of oilreserves exploitation has grown by20 percent over the twentieth cen-tury, and by 35 percent at present.This isn’t just a significant improve-ment, but it also means that two-thirds of the existing oil in eachknown oilfield remains unexploited.

Shale oil, bituminous sand,heavy oil. The fields are huge:the problem is in the costs. Buteven the same high oil pricesthat scared us so much mayturn into a strong incentive forexploiting the new sources.

But the best rebuttal to the “oil peakproponents” lies in the huge fields of“non-conventional hydrocarbons”.Deposits of shale oil, bituminoussands and heavy oil that may be

transformed into fuels able to runtoday’s normal cars. Canada, forexample, has bituminous sand fieldswith an energy content higher thanall the oil in Saudi Arabia. China,the USA, Venezuela and other coun-tries, also have large fields of theseenergy sources. The problem is thattransformation is more expensive,in both economic and environmentalterms, than conventional crude oil.But the very high price that the ca-tastrophists see as a sign of impen-ding depletion also furnishes a po-werful incentive for the developmentof these slimy deposits - and of thetechnology that will allow us to ex-ploit them in a clean manner.The issue is predicting whether highoil prices will last forever. We shoul-dn’t bet on that. The high price of oilis the result of short term discre-pancies between demand and sup-ply. Another hiccup in the globaleconomy like the Asian financial cri-sis could disturb the balance of theoil market by pushing the pricedown or up, as happened in 1997.

Will the price of crude stay thishigh forever? The last wordhasn’t been said yet. The Saudisare rebuilding their reserveswhile an unprecedented waveof new oil is about to hit themarket.

The key variable to be watched is theproduction stocks of the Organiza-tion of Oil Exporting Countries(Opec). For the greatest part of thelast three decades, Opec has beenable to produce more oil than whatis actually put on the market, con-tributing to managing the price.Saudi Arabia in particular has usedits reserves to establish itself as thedominant member, flooding the mar-ket with their “cushion” reserveswhenever normal global productionhas been disturbed, as it was duringthe Iran-Iraq war and the first Gulfwar. Price increases seen at regularintervals during the last years aremainly the result of the fact that theSaudis have allowed their reservecapacity to go down during the

1990s, and the global failure to pre-dict the increase in Chinese oil im-ports. In order to address the gro-wing demand, the Saudis arespending tens of billions of dollars torebuild their reserve capacity andan unprecedented wave of new oil –the result of investments made a de-cade ago – is almost ready in Russia,the Caspian Sea and Western Africa.If the Saudi Arabian or someone’sreserves fluctuate, or if the demand,in China especially, vacillates, thenthe new price level, which many in-vestors think of as permanent, willappear more and more wobbly. Opecwill surely try to stabilize the price ifother oil producers (or producers ofoil alternatives) come onto the mar-ket. But history teaches us that thecartel is never able to maintain anabsolute production discipline. Ine-vitably, some avid members defy theleadership and cheat in their quotas,making the high price policy hard tomaintain.We thus see that the myth that pricesare decided by big oil companies isproven wrong. Every time that theprice at the petrol station increases,politicians and environmentalistsscream that oil companies such asExxonMobil or BP are creating the

prices. In real life, big companiesmay appear as very powerful to con-sumers but even the biggest, withfamous names, are able to do any-thing when facing Opec’s Goliath.

The role of Opec and of the bigoil companies in the pricevariations of crude oil. Theproblem of Big Oil regardingthe new wave ofnationalization of wells inVenezuela and Russia today.

It’s a matter of supply and demand.Differently from what happened du-ring the time of the oil scandals ofthe 1970s, when most of the oil wassold through bilateral contracts, oiltrading nowadays takes placethrough sophisticated and very fluidfuture markets, such as the NewYork Mercantile Exchange. It is thusdifficult for companies to manipu-late prices. And wherever there aresuspicions of under-the-table dea-lings, control authorities take ahand.It’s true that the oil market is farfrom being a free one, distorted as itis by myriad financial aids and sub-sidies. It is also true that reservesand prices are continuously subjectto manipulations. But Big Oil is not a

26number

one

face

to fa

ce

Is the world about to remain without oil? It’s unlikely

Iby VIJAY V.

VAITHEESWARAN

Vijay V. Vaitheeswaran. After receiving his MA inMechanical Engineering from the MassachusettsInstitute of Technology Vijay has been a correspondentfor The Economist since 1992, when he started workat the London offices of this publication as acorrespondent for Latin America. In 1994 he openedhis first office in Mexico City where he reported thepolitical, financial and cultural developments of theregion until 1997, when he returned to the Englishcapital. From 1998 to 2006 he was in charge ofEnvironment and Energy.

Vijay is a member of the Council on Foreign Relations. He hastaught at Stanford University, at Oxford and Yale, and he is anAssociate Professor at New York University. In 2005 he publisheda book on the future of energy, entitled Power to the people: Howthe Coming Energy Revolution will Transform an Industry,Change our Lives, and Maybe Even Save the Planet.And in 2007 his last book together with Iain Carson, Zoom: theglobal race to fuel the car of the future.

The day of peak oil? It will come but wewon’t see it

oilbodoni_num1 ING.qxd 27-05-2008 11:42 Pagina 26

conspirator. Opec is. Saudi Aramco, afounding member of the organiza-tion, has 20 times the reserves of Ex-xonMobil, the largest of the big com-panies in the private sector. In otherwords, Western companies suffer theprices, they do not fix them.And notwithstanding record profits,Big Oil has serious problems. Theoil rich countries, like Venezuela andRussia, are nationalizing their re-sources just as Saudi Arabia andIran have done in the past. This me-ans that many of the world reserves,and all of the easily accessed andcheap sources, are no longer availa-ble for most of the private compa-nies. Western oil companies are de-pleting their main product, even if inabsolute terms it is not like this. Andthis is a fact that at the end of theday could harm consumers: Big Oilis the only counterweight Opec has.

It is fair to say that among the maincauses of the price increase of the oilis the unquenchable thirst for crudethat China has. And now? There isno doubt that Chinese demand for oilhas increased – and dramatically so– over the last decade and that theworld's main energy producers havenot succeeded in foreseeing the over-load placed upon oil markets. Thisincrease in demand and the recentfrantic energy acquisition overseasby Chinese companies has led manyto fear that the world’s energy safetymay be endangered due to the factthat China's oil needs continue toincrease. In the United States thisworry reached fever pitch in 2005when one of the national Chinese oilcompanies, CNOOC, made an offer topurchase Unocal, a medium levelAmerican gas company. In the endthe offer was withdrawn after harsh

political reactions in Washington.But Chinese hankering for oil doesnot make the United States – or anyother country – less safe. The mainthing is that oil arrives to the market,independently from who owns it orproduces it. That is why it is goodnews that China pays to buy oil fromthe world markets, investing billionsof dollars to increase production.Every barrel of oil that China pro-duces in Chad, Ecuador or Kaza-khstan is a barrel that is not boughtfrom traditional world markets, lea-ving more for the rest of us and slac-kening prices. In contrast with eve-rything China is doing – investingbillions to increase world produc-tion – are Venezuela’s tactics: expelforeign companies and discouragenew investments in the oil sector ac-cording to Hugo Chavez’s distortedprinciples of “patriotic energy”.China’s oil consumption should notconsidered an environmental ni-ghtmare at all. This is a fear thatdoes not take into account an im-portant new development: China’sdetermination to find alternatives tohydrocarbons. There is a real, flou-rishing green revolution in Chinathat does not arise from environ-mental concerns but from the in-creasing paranoia of the country'sleadership regarding dependence ofoil from the Persian Gulf. That is one of the reasons why Chinahas decided on rigid standards foreconomy in the consumption of fuelsand Beijing is the world leader inthe development of technologies re-lying on electricity and hydrogen.Besides, it isn’t difficult to imaginethat some technological “leapfrog-ging", as happened in telecommuni-cations in the developing world du-ring the last decade, may transform

the next generation of Chinese carsinto green machines.

Hybrid cars will not solve theoil dependency problem.Radical changes are needed inautomotive technologies whichaccount for half the world’sconsumption of crude. And areal revolution is starting.

Regarding this, another misunder-standing must be faced: the beliefthat the solution of the oil availabi-lity crisis may be solved by hybridcars. This is not true. Imagine aworld in which 100% of the cars aregasoline hybrids such as the ToyotaPrius, and you still have a worldwhich still depends 100% on oil. Apartial move towards alternativefuels will never be decisive; the fu-ture demands a radical change bothin new fuels and in engine techno-logy. To condemn SUVs as a threatto the environment does not addressthe main problem: it’s not the size ofthe car that matters, but the fuel itburns. Two thirds of this year’s con-sumption in the United States – andabout half of world consumption –will be by cars and trucks. Rethin-king cars is the only serious way to

disaccustom the world from oil. Theadvanced electronics of the Prius isjust a first, useful step of the cleanautomotive revolution, that is justbeginning.From Silicon Valley to Shanghai, in-ventors, entrepreneurs and environ-mentalists are surpassing the big oilcompanies and car manufacturers.Nowadays, for new, emerging socie-ties, it’s much easier to defy the ma-jor car manufacturers, because thefundamental technologies are nolonger hidden within the company,but are put out to tender to thirdparties all over the world. While theautomotive dinosaurs snooze, thegiants in other industries invest mil-lions of dollars to get a slice of the fu-ture market cake. It’s no joke to saythat the car of the future could bemanufactured by Sony, Apple or In-tel. Maybe it will be designed by twoteenage geniuses working day andnight in their garage to create thenext marvel. What is true is thatsuch a day is coming.

Reprinted with permission from Foreign Policynov/dic 2007. www.foreignpolicy.com

© (issue year) by the Foreign Policy.

Crude reserves today are larger today than thirty years ago New technologies to better exploit existing deposits and,especially great steps forwardtowards more fuel-efficient cars The spectre of oil shortages is baseless, at least for the time being

27

Peak oilface to face

oilbodoni_num1 ING.qxd 27-05-2008 11:42 Pagina 27

il resources are fi-nite: this is irrefu-table. But it’sequally true that noone knows justhow finite they are.And trying to as-sess their order ofmagnitude is a verycomplicated puz-zle. That’s whyover the years theproblem of theworld’s crude re-sources has oftenbeen underestima-

ted. In the 1920s, for instance, BP(then Anglo-Persian Oil Co.) refusedto take a stake in what is now SaudiArabia, thinking that the countrydidn’t hold a single drop of oil. In the1960s, Mobil abandoned an areawhere it had drilled with no successand shortly afterwards ArmandHammer’s Occidental – then an insi-gnificant oil company – discoveredLibya’s largest oilfield in the samearea. Some other assessments ap-pear equally ridiculous today:In 1919, the US Geological Surveyprojected that the United Stateswould run out of oil in 9 years, yet bythe late 1920s, several huge disco-veries culminated in Texas’s BlackGiant field and provoked a massiveoil glut that almost destroyed theAmerican oil industry.In the 1970s, the most important oilcompanies, universities, and manyother influential institutions sharedthe view that oil production wouldpeak in the mid-1980s, and thenfall dramatically. As the CIA explai-ned in a now-famous report, thiswas the result “of rapid exhaustionof accessible deposits of conventionalcrude oil” or – in the words of thethen U.S. President, Jimmy Carter –it was because oil wells “were dryingup all over the world.” Instead, in1986 the world experienced one ofthe largest instances of overproduc-tion ever, and oil prices collapsed, asthey had done so many times be-fore.Gloomy predictions have surfaced

again at the dawn of this century, he-ralding a faster-than-expected do-omsday for oil, in this decade or – atbest – in the next one. The verdict ofthese new catastrophists may ap-pear more convincing because oftheir intensive use of formal statisti-cal and probability models that seemable to penetrate the mysteries ofour planet’s subsoil and reveal theultimate truth. In fact they do not.

In fact, the reason for somany wrong evaluations inthe 150-year- long history ofoil is that even today no onecan assess with anyreasonable certainty howmuch crude the earth holds inits depths.

No method has yet been devised toexplore them precisely, or even togauge the extent of future oil reco-verability from already-known re-servoirs. In other words, while oil re-sources are finite, no one knows justhow finite they are.That’s why searching for the ulti-mate figure about the amount of oilin the earth is like searching for the

Holy Grail—a never-ending processwith many claiming to have solvedwhat, in fact, remains a mystery. Thereasons are quite simple, and beginwith a very simple reality. There is no such thing as an under-ground lake or cavern containing oil.Unfortunately “black gold” is literallytrapped in minuscule cells of poroussubsurface rocks thousands of me-tres below the Earth’s crust, in whatare called sedimentary basins. Se-eing a piece of such a rocky depositwill astonish anyone who is not ac-quainted with oil geology: what theycan see is only a piece of stone,which only in the best cases showstraces of oil. Nature has worked for thousands ofyears to create these formations. Ori-ginally, they were huge accumula-tions of living organisms, decompo-sed and covered by successive strataof rocks that pushed them deeperand deeper into the earth until theyreached a level where an imper-meable rock stratum stopped themfrom sliding even lower. Upwardpressure and high temperatures ex-posed those organic sediments to achemical reaction which, over time,transformed them into today’s oiland gas. Only 30 percent of the se-dimentary basins of this kind thatare believed to exist on our planethave been adequately explored.Even the most advanced technolo-

gies for mapping the subsoil – basedon three-dimensional seismic (3Dseismic) reflection – can only sug-gest the possibility of hydrocarbondeposits. Although seismic methodsare sometimes compared to medicalultrasound scans that can give afairly clear picture of the human bo-dy’s inner secrets, they do not per-form in the same way. The problemlies in use of the term ‘images’.Those supplied by seismic wavesthat bounce off the subsoil innerstrata and come back to the surfaceare traces that need to be processedusing sophisticated mathematicalmodels and computer software inorder to produce a kind ofimage.The image produced still ne-eds plenty of analysis and interpre-tation. What’s more, seismic me-thods may be useless if – for example– the subsoil is made up of salt for-mations, which act as a shieldagainst seismic waves. In otherwords, seismic mapping technologyis still far from being able to producea clear picture of what lies below. Itis also expensive and quite new, so ithas been used to study only a fewbasins in the world.

In the end, only anexploration well can providemore precise indications of what lies beneath theground.

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The indescribable mysteries of oil

The problem of resources is not under the surface but over it

Finding the final amount for existing quantities underground is likelooking for the Holy Grail – a never ending story

O

Nature has workedfor thousands ofyears to create

these formations.They were

originally immenseaccumulations of decomposed

living organisms covered

by successivelayers of rock

Leonardo Maugeri is Strategy and DevelopmentManager at Eni. One of the best-known internationalexperts in the energy sector, he has written severalbooks, including ‘The Age of Oil’ (Praeger, 2006),published in Italy by Feltrinelli, and “Con tuttal’energia possibile” (“With all the energy possible”),published by Sperling & Kupfer in 2008. His articleshave been published in the most prestigiousinternational magazines, including Newsweek,Foreign Affairs, Science, Forbes and The Wall StreetJournal. A columnist for Il Sole 24 Ore, Maugeri is a

member of the Energy Advisory Board and the World EconomicLaboratory of the Massachusetts Institute of Technology (MIT),the International Councillors Board at the Center for Strategic& International Studies (CSIS) in Washington DC, and theEnergy Advisory Board at Accenture.

by LEONARDO MAUGERI

oilbodoni_num1 ING.qxd 27-05-2008 11:42 Pagina 28

But exploration through wells ismuch less widespread than mostpeople realize, and has been cen-tred above all on North America,and particularly in the U.S. Aboutone million field ‘wildcats’ (new ex-ploration wells) have been drilledthere, as against only 2,000 in theentire Persian Gulf area (300 of themin Saudi Arabia) since the inceptionof oil activity there. Even today, morethan 70 percent of exploration acti-vity is concentrated in North Ame-rica (the US and Canada), whichholds only around three percent ofthe world’s oil reserves. On the otherhand, only three percent of explora-tion wells drilled between 1992 and2002 were in the Middle East, whichholds more than 70 percent of theworld’s oil. But even the highly so-phisticated examination of core logsbrought to the surface by drilling isnot that simple.Despite the use of advanced techno-logies such as magnetic resonanceimaging (MRI), testing sometimes le-ads to inaccurate or contradictoryconclusions. Early in this decade, forinstance, scientists at Shell conclu-ded that the logs coming from a welldrilled in Rajasthan, in India didnot indicate the presence of oil, whileShell’s partner in the venture – CairnEnergy – held the opposite view.Eventually, Cairn took over the entireblock from Shell and made severaldiscoveries, which so far amount tobetween 380 and 700 million barrelsof recoverable oil reserves.It is clear that the art of oil explora-tion still has a long road ahead andremains based on human judgment.At the same time oil recovery fromalready-known fields may provideus with some surprises. Given itscomplex nature, a reservoir will al-ways entrap and retain a part of itsoil even after very long and inten-sive drilling. This means that fieldsthat no longer produce oil and areconsidered exhausted still containmore or less ample volumes of hy-drocarbons that simply cannot berecovered with existing technology.This is a problem that stems prima-rily from the permeability and otherphysical features of the reservoir, aswell as the limitations of available te-chnologies and the costs of recovery.Today, the average world-wide re-covery rate for oil is about 35 per-cent of the estimated “oil in place,”which means that only 35 barrelsout of 100 deemed to be contained inthe world’s oil fields can be broughtto the surface. And only a part ofthose 35 barrels or recoverable re-serves are considered ‘proven re-serves’, that are immediately availa-ble for production andcommercialization. Technology is thekey to increasing the quantity of oilthat can be extracted.Over the decades, the injection ofnatural gas and water, as well as ho-rizontal and multilateral drilling(along with the classical vertical ap-proach), have dramatically boostedrecovery, which as recently as thelate 1970s still hovered around 20

percent. New exploration methodsand technologies including the mostrevolutionary ones such as 3D sei-smic and horizontal drilling, becamecommercially available in the early1980s, leading to an increase in exi-sting reserves even without new di-scoveries.A most astonishing and dramaticexample is that of the Kern Riverfield, in California. Discovered in1899, in 1942 its “remaining” re-serves were estimated at 54 millionbarrels. But from 1942 to 1986 itproduced 736 million barrels, andstill had another 970 million barrels“remaining”. And new drilling andproduction methods – particularlythose regrouped in the so-called ca-tegory of “improved oil recovery”(like horizontal and multilateral dril-ling, among others) – may pave theway to still higher recovery rates inthe future.All of this underlines the fact that oilreserves are dynamic in nature andthat knowledge of resources is not astatic concept. This is the reasonwhy over decades, all attempts toquantify the oil reserve of our planethave proved to be too prudent, eventhough these calculations includedprobability values assigned to futurediscoveries and an increase in oilrecovery ratios.

Most recent resourceestimates for recoverable oilin the planet made by theInternational Energy Agency(IEA) and based uponprevious work done by theU.S. Geological Survey,amount to an estimated 2,600billion barrels.

Near 1,100 billion barrels are pro-ven reserves while the balance arediscoveries not yet developed, or elsethe result of estimates regarding fu-ture increments in the recovery ratioand regarding oilfields yet to be di-scovered. These estimates do nottake into account nearly 2 billionbarrels of so-called non conventionaloil (like ultra-heavy oil, shale oil and

29

It’s quite clear thatthe art of oilprospecting has along road to traveland remains basedon humanjudgement At thesame time,extraction of oilfrom known oilfields may yetsurprise us

face to face

oilbodoni_num1 ING.qxd 27-05-2008 11:42 Pagina 29

bituminous sands) the production ofwhich is on the increase, thanks toless expensive technologies and highmarket prices.

orld consumption today isabout 30 billion barrels ayear, with an estimatedincrease ratio of 2%, andthe fact that so little isknown about under-ground sources justify anoptimistic outlook, with

two warnings. The first concerns theimportance of the price in determi-ning the investments for new te-chnology, exploration and develop-ment of oil resources. Historically,low oil prices have inhibited inve-stment and encourage consumptionleading, in the end, to a supply crisisas the one we witnessed in the earlyyears of this century, On the con-trary, high prices have always fuelledthe launching of investments, eventhe current one, they have sloweddown demand, a process which isnow emerging, and in the end haveled to a production glut.

All of this has given the oilmarket its most importantfeature: a seesawing naturethat will accompany itprobably over the nexttwenty years.

And here is the second warning. To-day, more than 90% of the world’s oilreserves are under the direct or in-direct control of producing countrieswhich are now embracing a natio-nalist policy about reserves. This policy may lead to artificial re-strictions of the development of newresources with the goal of keepingprices high. It can also lead to oilfields in a de-clining phase to remain without theinstruments or technologies requi-red for their recovery. At the same time, even if private in-dustry makes massive investmentsin high cost areas and in non-con-ventional oil, it could increase thepush towards alternative fuels. Toput it simply, the oil problem is notunder the surface but over it.

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W

World oil reverses by country to 1/1/2007

Resto del Mondo16%

Kazakhstan3%

Nigeria3%Libya4%

Iran12%

Iraq10%

Kuwait9%

Russia5%

Arabic Emirates9%

Venezuela7%

Saudi Arabia22%

WORLD OIL REVERSES BY COUNTRY

0

250

500

750

1000

1250

1500

1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 20060

5

10

15

20

25

30

35

40

45

non OPEC

OPEC

R/P ratio

Billion of barrels

33

38

31 3133

29

32

4239 38 37 38

year

WORLD RESERVES AND R/P RATIO

Eni - World Oil&gas Review

Eni - World Oil&gas Review

New prospectingmethods andtechnologies,

including the mostrevolutionary oneslike 3-D seismic

and horizontaldrilling had

becomecommercially

available at the startof the 1980s

oilbodoni_num1 ING.qxd 27-05-2008 11:42 Pagina 30

ust twenty yearsago China was thebiggest oil exporterin the Far East. To-day oil from its do-mestic fields meetsjust a fraction of itsnational require-ments. By 2005China had becomethe world’s secondbiggest importer ofcrude. In 2007 atleast one-third ofthe increase inworld demand for

oil was accounted for by China. In noother country in the world is the con-cept of “oil peak” – the idea that oilresources have already passed theirhistorical peak and are now on adownward curve – so tangible andpalpable as it is in China. Chinese fo-reign policy is driven by the energyimperative, and it’s being done withan unusual approach: precisely be-cause China is already experiencingenergy shortages at near-emergencylevels, and is designing its strategiesto cope with a future where oil willbe physically scarcer, China’s stateoil industry is hoarding foreign oilfields by “binding” them with longterm supply contracts in exchangefor Chinese investment in local in-frastructures. From Iran to Sudan,from Angola to Latin America, and ofcourse in many countries in Southe-ast Asia, China is using its new fi-nancial riches to block long-term ac-cess to oilfields, offering thosecountries the Chinese model of mo-dernisation. The worldwide expan-sion of Chinese capitalism throughacquisitions is also largely driven bythe imperative to gain access to oilresources, while there still are any:the first major “raid” attempted byChina in the US was the bid for Ca-lifornia oil company Unocal; it wasvetoed by the US in 2005. A ratherbetter reception was in store for thesovereign fund that manages the cur-rency reserves of the Chinese centralbank three years later, when the redcarpet was rolled out for its entranceto the BP shareholder ranks. Otheraspects of the Chinese developmentstrategy are conditioned by forecastsof a future without oil, or a futurewith an ever-dwindling oil supply:its growing dependence on coal forproducing electricity; renewed inve-stment in nuclear energy with

French, US and Japanese techno-logy (over 30 nuclear power stationsare under construction); the im-mense hydroelectric power schemesalready built, like the Three Gorgesdam, or being built at the cost of di-splacing millions of people; and, la-stly, the development of wind andsolar energy: their spread has tran-sformed landscapes like the Gobi De-sert and the Mongolian steppe.But please do not think that in Bei-jing there is open debate on energypolicy scenarios, like the debate inwhich a wide variety of civil playerstake part in Western democracies.While it is true that the decision-ma-king process in Communist Chinadoes have a pluralist aspect, it isonly within a very restricted circle ofrepresentatives: strictly political lea-ders; the think-tanks whose job it isto provide the government with in-formation and projects (the Academyof Social Sciences in Beijing, several

branches of the Council of State, andthe research centre of the CentralBank); and a number of state indu-stry lobby groups that constitute ma-jor power bases in themselves, likethe oil companies and the car ma-kers. This scant transparency doesnot stifle the emergence of differingopinions, conflicts of interest, andtensions between short-term andlong-term objectives. The questionof oil scarcity, because it is so closelylinked with environmental problems,global warming, and China’s geo-strategic positioning and foreign po-licy choices, is a litmus test for therole that the Beijing ruling class in-tends to have in the world. The oildilemma also represents a constrainton the development policies onwhich the Communist regime hasbuilt its cornerstone of consensus:the middle and upper classes in Chi-na’s big cities have just entered theage private car ownership, and ow-ning a car is seen as a powerful sta-tus symbol and one of the tangibleresults of the “social pact” that hasdeferred political democratisation inexchange for accelerated economicgrowth. And all these dimensions ofthe oil question demand immediateattention, since the Beijing Olympics(among other initiatives) are threa-tened by an environmental crisisthat could mean heavy sacrifices interms of energy consumption.Three illuminating news items fromearly 2008 show the chinks in the re-lationship between China and oilscarcity: 1) The first is from Guan-gdong, a southern province (adja-cent to Hong Kong) which has the hi-

ghest per capita income in the coun-try and the highest density of indu-strialisation. In March 2008 Guan-gdong underwent its worst energyshortage of the last 30 years. Thegap between electricity productioncapacity and consumption needsreached 12 million kilowatts in amonth (50 million kW of demandagainst 38 million kW produced).Many manufacturers in the PearlDelta, the “Factory of the World”,had to ration production by workingonly four days a week, due to theshortage of electricity. Yet plans tobuild new power stations are domi-nated by coal, followed by nuclearpower. 2) Also in early 2008, follo-wing state oil company Petrochina’slisting on the stock exchange, it be-came the company with the highestshare capitalisation on all stock ex-changes worldwide, comfortablypassing out American giants Exxon,Microsoft and General Electric. 3)The hyperinflation of generic foods,with increases of up to 50% annuallyin pork prices, has in part been dueto conversion of arable land to pro-duction of biofuels to reduce depen-

31

face to face

China, mission reservesThe peak as seen from Beijing

Chinese expansion desperately needs resources. The ceaseless search for crude on all four continents

Binding contractsand strategicacquisitions to fight the West for oil down to the very last drop And thenthere’s China’s new,wide-ranging navy

Jby FEDERICO

RAMPINI

FedericoRampini isBeijing andAsiancorrespondentfor laRepubblica. Hehas taught atthe universitiesof Berkeley andShanghai, and

has been a columnist forboth Le Figaro andPolitique étrangère. He isalso author of numerousessays including "Il secolocinese" (‘The Chinesecentury’), 2005; "L’imperodi Cindia" (‘The Chindianempire’), 2006; "L’ombradi Mao" (‘Mao’s shadow’),Mondadori 2006; “Lasperanza indiana. Storiedi uomini, città e denarodalla più grandedemocrazia del mondo”(‘The Indian hope. Storiesof men, cities and moneyfrom the biggestdemocracy in the world’),2007.

oilbodoni_num1 ING.qxd 27-05-2008 11:42 Pagina 31

dency of China’s cars on petrol anddiesel derived from oil. And behindrevaluing the Chinese currency overthe dollar (the Chinese renmimbirose by 20% in two years) was theneed to rein in inflation on importedenergy via the oil deficit.

Urbanisation and energy: thelimits of development

A demographic bomb or, more cyni-cally, the “yellow peril”: this was ahot topic even in Mao’s time, but theChinese then were less than half asnumerous as they are today and allthey wanted was a bowl of rice aday. Then, the real constraints ondevelopment were the bungling mi-stakes of government, lack of capital,technology, and the right incentives.Today the only real constraint is adifferent one: the exhaustion of na-tural resources.In 1950 China created just one percent of world CO2 emissions. It wasalmost as if the country didn’t exist.The International Energy Agency(IEA) warns that by 2030, i.e. in just23 years, the Chinese will have seventimes more cars than they do today(270 million), and their energy con-sumption will have more than dou-bled. Within three years, China willhave overtaken the US in oil con-sumption: just two years ago, the USdemand was still greater by a third. Every Chinese peasant that gives upfarming and moves to the city, towork in a factory or as a bricklayeron the construction sites, will on theaverage increase his contribution toGDP by 700%. His environmental fo-otprint, i.e. his overall consumptionof natural resources, will similarlyincrease. Every year on average 15million Chinese leave the country-side, attracted by industrial metro-polises (or driven away by a livingfrom farming that can no longer sup-port them). Chongqing has 30 mil-lion inhabitants, Beijing and Shan-ghai are approaching 20 millioneach, and various other cities likeGuangzhou (formerly Canton), Shen-zhen, Hong Kong, Hangzhou, Tian-jin, Chengdu and Nanking are ap-proaching or have already surpassedthe 10 million mark. “Average” citieslike Xian, Harbin and Dalian, withover five million inhabitants – a po-pulation that a city like Rome willonly ever be able to dream of – num-ber in the high tens. Chinese deve-lopment is accompanying a pheno-menon of urbanisation that in termsof sheer scale is simply without pre-cedent in human history. It’s noteven equalled anywhere else in theworld today, seeing that in India (theonly country of comparable demo-graphic dimensions) the rural exo-dus is proceeding more slowly. TheChinese urbanisation is an essentialaspect of the country’s modernisa-tion drive: today, for the Chinese, tostay and till the fields in the rural re-gions means choosing to go withouta major jump in income, or to deferit by a generation. There is simply noway that farming in China could, or

will ever be able to, offer a desirablestandard of living for the 750 millioninhabitants of the countryside. Andan essential ingredient of China’seconomic rise is precisely the avai-lability of this “reserve proletariatarmy”, an enormous pool of low-costlabour that industry and services cancount on for a very long time tocome. The future is in cities: of thatthe overwhelming majority of Chi-nese have no doubt. But the citiesare also where today China is expe-riencing a twin emergency: the boomin consumption and the explosion inpollution. Urbanisation is the key tounderstanding the drama that Chinais going through: for the first time inits history it is coming up against itslimits of development, and this isclearly visible in the huge, chokingtraffic jams that paralyse the wideurban motorways in its cities. Inmany areas of Beijing and Shanghai,past urban planners have shown un-canny farsightedness, building a net-work of flyovers, ring roads, ringmotorways and bypasses with eightand even sixteen lanes, cuttingthrough areas that are today in thevery hearts of the cities. Yet at rushhour these vast expanses of tarmacare a tangle of cars at a standstill, thescene of the most gigantic traffic jamon the planet. Beijing is at one and the same timethe political capital, a huge centre ofwealth production, and the city thatfor seven years has been preparingto host the Olympics. For these rea-sons it is going through an expe-rience that will be crucial for thewhole of the rest of the country. Thechoices made in current years allowsome insight into the tensions thatall of China is experiencing in its at-tempts to make its monstrous me-gacities governable in the long term,including in terms of meeting theirenergy requirements. It is preciselybecause the Chinese regime had ma-jor expectations of the function ofthe 2008 Games that the commit-ments it undertook to set right theenvironmental disruption in the ca-pital – and therefore to discipline itsenergy consumption – are a decisivetest for the country as a whole. In acertain sense Beijing has set itself“Olympic targets” of air quality andhealth that could become a referencestandard for years to come in termsof Chinese environmental policies.The enormous problems that Beijinghas tried to solve in recent years arethe challenges the entire country willface in the future. Beijing’s Olympicefforts have become a litmus test forwhat can be done, as well as whatcannot be done: efforts to reduce thesmog for the Games are meetingwith stiff resistance.The size of the challenge is colossal.By the end of 2006, forging aheadand breaking all predictions, Chinaachieved a new world record, andseveral years in advance: it is nowthe single biggest source of carbondioxide released into the atmo-sphere. China has stripped the US ofits unenvied title as worst climate

change offender. The China-US over-taking had been forecast by experts,but they thought it was furtheraway: the International EnergyAgency (IEA) had initially said thatit would happen by 2010. Chinabeat them by four years. The final fi-gures for 2006 were taken by inde-pendent scientists under the aegis ofthe Netherlands Environment As-sessment Agency. Scientists measu-red 6.2 billion tonnes of carbon dio-xide that China released into theplanet’s atmosphere, an increase of8% over the previous year. The USin 2006 released “only” 5.8 billion

tonnes of CO2, a slight fall (-1.4%)on the previous year. A fundamentalcontribution to China’s overtakingof the US came from the formidableupgrading of its electricity produc-tion. This, too, is an effect of mo-dernisation of the Asian giant: morefactories, more building sites, andmore consumption by mass urbani-sation (home appliances, air condi-tioners, and computers). In a highly-energivorous industrial sector likeconcrete, China – land of megaci-ties and skyscrapers – now accountsfor 44% of world production. To sa-tisfy the boom in electricity needs, inthe last five years China has increa-sed its power station capacity by150%. This growth is acceleratingexponentially. Right now, every fourdays China is opening a new ther-moelectric power station withenough power to light a city of fourmillion inhabitants, or Rome andMilan combined. Over the next eightyears China will open 550 new ther-moelectric power stations, or inother words it will add the equiva-lent of all the power stations thatcurrently exist in the entire Euro-pean Union. Two thirds of these po-wer stations use coal, the energysource with the highest levels of CO2emissions. But coal is also the onlyfossil fuel that China has in abun-dance, and it is also much cheaperthan oil and natural gas…if you ex-clude the human cost, of course:6,000 miners die every year to bringcoal to the surface.China’s overtake of the USA is boundto increase the political pressurefrom the rest of the world upon the

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In just 23 years the Chinese

will have seventimes as many

cars as it does today(270 million) and

their energyconsumption will

have more thandoubled In three

years its oil consumption

will overtake that of the US

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authorities in Peking to make themadhere to an international agree-ment on reductions of carbon emis-sions. The Olympics effect will rein-force this tension. The Games –which were originally intended bythe rulers of the People's Republic tobe a grand occasion to consecratetheir own international “respectabi-lity” – are becoming also an oppor-tunity for an ever closer scrutiny bythe West. The question “Will the Chi-nese be able to bring down Peking’ssmog to acceptable levels by August2008?” has turned into a simplifiedmetaphor to summarize the terms ofthe overall challenge awaiting Chinaregarding climate change. Actually,placing emerging powers and coun-tries with older industrialization onthe same level is open to debate. Onthe one hand climate change wastriggered by pollution accumulatedover the past decades, in which Chi-na’s role was marginal. On the otherhand current responsibilities appearunder a different light, if instead ofconsidering total amounts we ana-lyze per capita emissions. The de-

structive impact of China is linked tothe size of its population: 1.3 billioninhabitants. But individual citizens ofthe People’s Republic still consumemuch less than our own citizens andtherefore they pollute far less. The750 million Chinese living in ruralareas live on less than three dollarsa day. For the time being carbonemissions of Chinese consumers, ona per capita basis, are only aboutone fourth of the American ones anda third of the European ones. Thesame applies to oil consumption,measured on a per capita basis. Fair-ness aside, however, the same Chi-nese authorities realize that their de-mographic dimensions arethemselves a problem: The impact ofthe Chinese population upon the na-tural resources of the planet is un-precedented. Not by chance the lea-ders of the People's Republic aredetermined to continue with theirbirth control policies and their rigid"one child" rule. An aggravating cir-cumstance is derived from the po-pulation size. The development mo-del favoured so far by China’stake-off – based upon their role as“factory to the planet” – has assi-gned a dominant role to the mostenergy-hungry industrial sectors,from concrete to steel, from cars tobuildings. Very few restraints havebeen applied to these sectors interms of energy efficiency. As a mat-ter of fact the Chinese economy to-day is a monument to waste. Practi-cally in every productive area thecountry uses production techniquesthat consume more energy thantheir Japanese, European or Ameri-

can competitors. In order to manu-facture 10,000 euros in manufactu-red goods and industrial products,China consumes seven times moreenergy and natural resources thanJapan (at an identical production le-vel), six times more than the UnitedStates. In August 2007, the first experimentin mandatory reduction in car trafficwas carried out according to the oddand even license plate rule. For fourdays circulation was reduced by amillion cars, from a total number of3.5 million vehicles in the capitalcity. Traffic reduction will becomepermanent during the Olympics. Anexecutive eviction has hit one of thelast industrial dinosaurs of Peking,Shougang steel works built in 1919only 17 km away from TiananmenSquare. The blast furnace was erec-ted in a distant place, on an artificialisland of the coast of Hebei in nor-thern China. About forty industrialfacilities and thermal power plantshave been moved to distant regions.Serious measures like these betraythe growing alarm of the Chinese re-gime. Among the many challengesthat the People's Republic will haveto conquer within a year, pollution isso far the most persistent adversary.The toxic particles that we inhaledaily in Peking’s air surpass by 78%the maximum levels allowed byWorld Health Organization. This city,although covering a surface as largeas Belgium, is a giant gas chamberwhere everybody is being suffoca-ted. 750.000 premature deaths: is theslaughter that smog causes in Chinaevery year. This estimate is found inan in-depth analysis carried out bythe World Bank about pollution da-mages in the largest nation of theplanet. The authors have used thecriteria used all over the world by in-dication of the World Health Organi-zation (WHO) The level of airbornepollution is measured through theconcentration of toxic particles inthe air we breathe. The WHO hasestablished the danger threshold forsurvival at 20 micrograms. Only onepercent of the Chinese living in largecities breathe air with less than 40micrograms of toxic particles. 58% ofthe inhabitants of Chinese citiesbreathe air with more than 100 mi-crograms of toxic particles.

Authoritarianism andconsensus: the automotivepolicy

With a yearly 12% increase in theGNP, the well being of the urbanmiddle class adds 1,200 cars per dayto the number of vehicles in circula-tion in the congested superhighwayscrossing Peking. Even an authorita-rian regime like the Chinese one re-veals limits in their decision makingcapacity. The restraints of consensusleak out also into the steps, or halfhearted steps, with which the smogemergency is being faced. Still, evenPeking which is one of the richest ci-ties in China has an individual car

ownership far lower than those ofthe rich Western countries. The com-pact car is the dream of middle classfamilies, now numbering near 200million in all China. The emotionalrelationship with the car resemblesthe one that characterized the Italyof the economic miracle of the Six-ties. few thought about the environ-mental damages then, the conquestof new mobility was the trend then,the emancipation of the individual.For the Government in Peking theconsensus of the urban middle classis the mainstay of political and socialstability. And the automotive indu-stry is one of the strategic areasupon which China counts for its owndevelopment. It is not by chance thatcars are one of the last sectors forwhich the government demands fo-reign companies to enter into jointventures with local partners. Ano-ther emblematic resistance transpi-res regarding the project – discussedin several opportunities – to closedown all the factories in Peking’s ur-ban belt two months before theOlympics. No less than the secretaryof Peking’s communist party Liu Qi,(who is also the president of theOlympic Committee) intervened onSeptember 17, 2007 to put an end tothe indiscretions regarding this mea-sure, and he did it through a veryunusual method: an interview withthe Financial Times, a world knownmeans of communication. Liu saidthat he had "never requested the in-terruption of activities of the indu-strial facilities" during the Games.He has stipulated that the control ofpolluting gases emissions of thosefactories will be enough, withoutneed of paralyzing production. It hasbeen held that “athletes will be ableto participate normally in the eventsin August 2008”, and in order tostrengthen their optimism a num-ber of highly unbelievable data hasbeen spread regarding the quality ofair in the Summer of 2007. The exitof the number one man in the com-munist party of the capital city hasnot perhaps closed the debate com-pletely. It is possible that in front ofOlympic games “darkened” by smogthe government will have to take ex-treme measures. But Liu’s positionspeaks volumes about the intereststhat have been affected, about theforces at stake, about the nature ofthe opposition. Communist nomen-clature is one of the parties in a so-cial contract with the new Chinesecapitalist bourgeoisie. To maintaineconomic growth according to themodel followed so far, the high pro-fit level, the possibility of investingand producing without having animpact upon too stringent regula-tions and control, are implicit clau-ses in this social pact. The buildingspeculation and construction sector– as in every country in the world –is one of the privileged places werepolitics and business are interwo-ven. The level of corruption is high inevery area of Chinese economy, withpeaks in the real estate business. Itis clear that the government has not

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face to face

Beijing could reduce its energyconsumption by20% if its buildingsadopted the latestenergy-savingdevelopments

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got the strength to impose upon thebuilders, the standards that are re-quired for the conservation of energyand for environmental efficiency, be-cause it has to do with one of the“strong powers” in today’s China.More in general, the best way toachieve substantial reductions inenergy use would be adopting tran-sparent prices – eventually with theaddition of a coal tax – that wouldforce the users to pay the real cost ofthe pilfered natural resources. ThePeople's Republic is a long way fromthis. All energy prices, from electricpower to petrol, are widely subsidi-zed, managed according to politicalcriteria, and well under their effec-tive cost. The behaviour of every ca-tegory – from industrial entrepre-neurs to real state builders, fromautomotive companies to big farmerpurchasing fertilizers – are distor-ted from a price structure that doesnot encourage saving. Here too, not-withstanding the authoritarian na-ture of the regime, short term con-sensus logic prevails. There has beena cross-check during the 2008 lunarNew Year, when by late January mil-lions of Chinese remained withoutelectric power for over a week. Re-cord snowfalls had blocked trainsand highways from Nanking to Can-ton. To the real difficulties that slo-

wed down transportation of coal andoil, the big power companies addedan orchestrated shortage. A powerstruggle with authorities could besensed behind the blackout For along time energy producers – Stateshepherds watching out for profits –have complained that the political

prices imposed by the governmentdo not allow any profit. In fact, fromthe utilities bill to petrol and diesel,consumer prices have not reflectedcost increases at the source. Tariffcontrol is a nearsighted choice thatdoes not foster energy saving. It an-swers to a demand for consensusthat is present even under authori-tarian regime. Communist rulers donot forget that in 1989 the Tianan-men movement conquered wide-spread popular support due to thesocial unrest cause by the strong in-creases in cost of living expenses.

The Chinese “mafia” insearch of resources in fourcontinents

“I am not worried about foreign in-vestment in America. Protectionismas an answer would be a mistake”.George Bush was forced to interveneon December 19th, 2007 in order toreassure Americans after the ChinaInvestment Corporation blow: thatday the Sovereign Wealth Fund ofthe People's Republic bought 10% ofthe Morgan Stanley bank for 5 billiondollars. Americans realized theywere the prey of an unprecedentedinvasion. The operation that Bushcondoned in the name of liberalismwas a creeping nationalization: a hi-storical Wall Street institution wasbreached by the forces of capital be-longing to a foreign power. Not atwo-bit, friendly state like Abu Dhabior Singapore but America’s rivallingsuperpower, Communist China, thebiggest authoritarian regime of ourtimes. Bush tried to render the factless dramatic but his words couldsound like a surrender. A few daysbefore entering into Morgan Stanleythe very Chairman of the China In-vestment Corporation had launcheda menacing warning. “The westerngovernments will not use nationalsecurity pretexts to cover up protec-tionism or we will boycott them”.Whoever tries to stop the press rol-ler of Chinese investments will paythe consequences. America cannotafford it. The Sovereign Wealth Fundchaired by Lou Jiwei is the emana-tion of Peking’s Central Bank, Wa-shington’s richest creditor. Throughtheir commercial deficit the USAhave allowed the People's Republicto accumulate 1,700 billion dollars inmonetary reserves. 800 billion fromthat amount were invested in USTreasury bills: the financing of Ame-rican public debt depends now fromMao Tse Tung heirs. With these ri-ches China finances their world wideexpansionism. According to Li Yang,the director for the Chinese academyfor social sciences “the SovereignWealth Fund will manage the stra-tegy of Chinese resources on a globalscale” The purchase of 1% of BP inApril 2008 is in line with this voca-tion.The chronicles of the assault on thebastion of U.S. capitalism is very re-cent. Only in 2001 the WTO admittedPeking as a member. Western multi-nationals celebrated the opening of

the largest market in the world. Thefirst surprise arrived in 2004. Shan-ghai’s TLC bought the mobile phonecompany from France’s Alcatel andthe historical American TV brandRCA. On December 7th, of the sameyear the IT company Lenovo, foun-ded by an officer in the People’s Li-beration Army, plucked the personalcomputer branch from IBM. Tenthousand IBM dependants, a symbolof American technological supre-macy, are now under a Chinese boss.The following year Washington re-bels when China National OffshoreOil Corporation tries to acquire Cali-fornia oil company Unocal. By early2007 the sub prime crisis brings thebanking system to its knees. ThePeople's Republic profits the oppor-tunity for a series of lightning strikesin the temples of Western finances.In a rapid succession the BlackstoneInvestment Fund (May), BarclaysBank from the UK and the BelgianFortis (October), Morgan Stanley(December) have to receive the Chi-nese State stockholders as their “sa-viours”. Chinese penetration has not beentriggered only in the heart of U.S. Ca-pitalism. The expansion takes placein all continents. Already by late2006, Peking’s Ministry for Com-merce had direct investments in tenthousand major companies in 160countries. One of the foreign acqui-sition criteria is to corner naturalresources, from energy to minerals,from woods to food crops. Canadaand Australia, Brazil and Indonesia,all the major raw material produ-cers are invaded by Chinese inve-stors. A geostrategic vision emerges,the People's Republic lays a trap onzones of influence that belonged tothe West. The People’s Daily descri-bes “the inevitable decline of theAmerican presence in the MiddleEast”, and thus Chairman Hu Jintaosigns in record time “treatments forthe protection of Chinese inve-stments" with 16 governments inArab countries. 352 Chinese com-panies are now present in Egypt,one of the more faithful Washingtonallies. Investments have reachedSaudi Arabia, Oman and the UnitedArab Emirates, Algeria. Sinopec oilcompany obtains from Iran the ex-ploitation of the great Yadavaranfields: oil reserves of 18.3 millionbarrels. At the same time the Chinese rulingclass is well aware that “peak oil”may be quite near. The nationalenergy plan launched by Pekingestablish the target of producing10% of the national electric energythrough non-fossil and renewablesources, it intends to diminish by20% the energy consumption oftheir industrial production. But Pe-king is ready to dispute the last dropof oil with the West. The construc-tion – for the first time in five cen-turies – of a long range military fleetable to defend the sea routes fromthe Persian Gulf to China, is an une-quivocal sign.

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Industrialisation,urban growth andmotorisation aredriving an energy

spree that nobody can stop:

the weight of the two Asian

colossi on world oilavailability But

they’re not the only ones

who have to find solutions

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35

working tools

Time goes by even forthe most stable ofcouplesAnd there can be no doubtthat the marriage betweenItaly and Europe has begun toshow its age, with theevidence of their up anddown relationship fully visiblein 2008. Are we still the mostpro-European nation on thecontinent? Where does thebalance lie between our pro-Europe and anti-Europesentiments? But above all, arewe certain that the image ofEurope projected by publicdebate accurately reflects thedevelopments on the horizon?These are some of thequestions we will be facedwith in the next few weekswhen the government formedin the aftermath of Italy’s Aprilelections formulates its foreignpolicy. We will have to facethese questions simplybecause Europe cannot affordto have an Italy that isanything but strong anddetermined as a new anddifficult era dawns across theworld. Lastly, we will have toface these questions becausefor some time now ourposition in Europe has beencrying out for clarification. Wewould be fooling ourselves,harming ourselves even, if wethought that a discussion onEurope in 2008 could followthe same lines as a similardiscussion just ten years ago.While it may be true that inItaly everybody gets a second(or third) chance, it is equallytrue that the world continuesto turn and that the politicalthinking developed in Italy totackle the European questionis now unsuited to the newand fractious world in whichwe live.

The lines along whichwe have discussedEurope, pro and con,over the last fifteenyearsFirst of all there is progressiveEuropeanism, the approachthat has largely dominatedItalian thinking on the matter.This is Europeanismdominated by federal pride,steadfastly hostile to thecentrality of the national stateand stubbornly convinced thatthe destiny of our continentlies in the formation of a“United States of Europe”. Thisis without wishing to take

anything away from thehistorical-idealist merits ofAltiero Spinelli of course. But itis evident that the religion ofEuropean federalism is nowthe equivalent of a bluntsword. For many it hassucceeded in replacing thesupreme ideal that has driventhe evolution of Italiancommunism, for others it hasrepresented nothing morethan a way of going the extramile. Yet if we take a closelook at the miracle ofEuropean integration andseriously consider what islikely to become of theEuropean Union, the almostirenic vision of Europe thatfederalism presents us with isno longer satisfactory: a feel-good realm where “nationalegoism” dies out as a matterof course and where there isno room for“intergovernmental alchemy”.The result of a moral ratherthan political vision ofEuropean federalism, theEuropeanism of Italianprogressivism has had asingle, unerring goal, whilstawaiting a long-expectedpalingenesis that in themeantime provides both usand our day-to-day politicalactivity with a sense of identity.The moral basis of progressiveEuropeanism has beenamplified by the specific rolethat European enterprise hasplayed in Italy: that ofmiraculously curing ourinstitutions, our politics of itsinnate weaknesses. In thisway, Europe has been able togive Italy something that Italycould not manage to providefor itself, acting as such as apowerful but external relation.The consequence being thatwe are the only majorEuropean country that viewsEuropean enterprise not as anopportunity to exploit ourpotential but as a way ofridding ourselves of a national

identity which, although weak,is seen as embarrassing. In acertain sense this hasbenefited Italian Europeanism,which has always beenstronger in Italy than in anyother comparable nation. Onthe other hand, it has alsoresulted in a profoundlyrhetorical interpretation ofprogressivism. Which, as such,has found itself largelyunprepared to deal with theinstitutional crisis and the crisissurrounding the legitimacy ofthe EU. This moralisticperspective gives us little ideaof the way in which theEuropean question hasactually evolved – the balancebetween thriving andconflicting national interests,which have managed to co-exist at a European level – andeven less so a politicalperspective as we enter a newera of Italian Europeanism. AEuropeanism that is suitablefor an internationalenvironment marked by theincreasing integration ofregional and functionalinstitutions, that pushes Italy toadopt a consistent andresponsible policy of nationalinterest. Equally outmoded is theEuropean vision that the Italiancentre-right has adopted overits fifteen-year lifetime. With noforeign policy tradition of itsown, it initially cobbledtogether a policy by borrowingideas from its various politicalfactions and ideals. In 1994 inRome - during the Polo dellaLibertà’s first term in office -this resulted in the vehementopposition to the admittanceof Slovenia to the EU in thename of the Istrian-Dalmatianrefugees. At the time itseemed perfectly natural tothe centre-right to revive anold revanchist platform that formany years had formed partof the foreign policy of theItalian Social Movement. As

such they demonstrated aserious misunderstanding ofthe new possibilities that theEuropean Community couldoffer, even in terms ofsolutions to questions such asthat of Istria-Dalmatia, and ofthe dynamics of thedisintegration of themultinational empires of realsocialism. The centre-right’ssecond term in office wasmarked by a less nostalgicapproach to the nationalinterest, its foreign policy thistime based around two mainissues. The first of these wasrelations with the US, whichtook the form of a completelybilateral and “privileged”relationship with Washington,with Rome seeking “bestfriend” status as part of astrategy reminiscent of theCold War alliances. A vision ofItalian-US relations that wasquite different to thattraditionally expressed byItalian moderatism – whichhad never really questionedthe multilateral nature of theItalian-US relationship – andthat sought for Rome aprivileged, solitary position ofimportance. The second policyto shape the centre-right’sforeign strategy was its deepscepticism of the potential ofEuropean integration. Equaland opposite to the centre-left’s peaceful and moralisticEuropeanism, the Italiancentre-right’s diffidencetowards the European Uniontook the form of a mix of theNorthern League’s glorificationof local identity and of popularcriticism of “Brusselsbureaucracy” and its“democratic deficit”.

Today, in mid-2008, theanalytical toolsavailable to us arewholly inadequate toguide us as wenavigate Europe as wellas the wider world

The closing of the curtain onthis period of neo-conservatism in the US –which has become aninevitability over the last fewmonths and which should beconfirmed by the elections atyear-end, whoever theeventual winner may be –looks likely to lead to a re-evaluation of the deep-rootedanti-American sentimentamong Euro-federalists, aswell as the centre-right’s still-existing ambition to forge anexclusively bilateralrelationship with the WhiteHouse. Going beyond purelypolitical circles, the newrecessionary economic cycleand the crisis affecting freetrade that has dominated thelast decade have pushed us tostudy the true virtues ofEurope with greaterpragmatism and to finish thepursuit of any federalist idealswe may have once and for all.Surprising though it may seem– at least in the light oftraditional Europeanism – it ispossible that the economicturbulence and the new spiritof protectionism taking holdboth in Washington and inAsia will lead us to appreciatethe European Union for whatit is rather than for what wewished it had become. It istherefore a real tool ofconvergence for real policiesin both the energy andfinancial fields: a Europe finallyfree from (our) federalist hotair and able to speed up theformulation of commonpolicies, just as we sawhappen when the EuropeanCommunity first came intobeing. And we may even seeItaly go beyond merelyexpounding Europeanistrhetoric to become a keyplayer in this Europe in thenear future.

Is a leader writer for La Stampa andprofessor of modern history at Tor

Vergata University in Rome. He hasworked as a researcher at the

Fondazione Istituto Gramsci and asa political advisor at both the

Ministry of Defence and the Ministryof Foreign Affairs (under the Prodiand D’Alema governments). From

2000 to 2005 he was director of theFondazione Italianieuropei, chairedby Massimo D’Alema and Giuliano

Amato, and editor of the bimonthlymagazine of the same name.

For Mondadori he published, in2005, The Boy.

The inadequate europeanism

of italian politics

FROM ITALYFORECASTS

by ANDREA ROMANO

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A single voice, a singlestrategyThe EU’s political and energypolicy, as delineated by theCommission, can besummarized in these sixsimple words. The 2006Green Paper describes theprospect of a “perfect”economic and political (theorder is by no meansrandom) Europe, given that astrategy “based exclusivelyon 27 national energy plansis not sufficient.” In adoptinga unified front, Europe has“the necessary weight toprotect and enforce itsinterests” and the politicalcapacity to tackle the newscenarios. However, Europe“has not yet institutedperfectly competitive internalenergy markets” andstringent regulations have tobe imposed in this sense.The concept of “competitiveperfection” is one of theCommission’s keystones. The“national samples” do notform part of this strategy. InBrussels there is a well-rooted determination tocombat European and extra-European energy monopoliesthrough the full unbundlingof the energy distributionnetworks from production.On the one side thesuppliers, on the other thedistributors. In this vision,only complete liberalizationwill lead to true competitionand the reduction inconsumer prices. There arehowever those who, in amore political vein, see thisdrive for “competition” asbeing stimulated by anti-Russian pressure from theUSA and the containment ofGazprom, Putin’s great geo-strategic asset that alreadyhas footholds in Germany,Austria, France, Italy andHungary. As for political anddiplomatic action, the Green

Paper places the emphasison the need to agree on an“external energy policy”, theefficiency and coherence ofwhich will depend on thecreation of a competitiveinternal market. In thiscontext, the gas sector, withthe construction of newinfrastructure (the gas and oilpipelines and terminals forliquefied petroleum gasnecessary for securingsupplies) and the necessarythird-party transit and accesspermits for the existinginfrastructure, is cruciallyimportant. There is talk of“independent supplies” andof a new EU-Africa strategythat “could help Europediversify its gas and oil supplysources”. With regards toRussia, the principal EUsupplier, it is said that only “atrue partnership wouldguarantee security andpredictability for both parties,paving the way for thenecessary long-terminvestments in new capacity.It would also mean fair andreciprocal access to marketsand infrastructure including inparticular third party accessto pipelines.

A more ambitiousenergy policy?The Green Paper has alreadybeen received by theEuropean parliament with acertain grassroots scepticism.The resolution approvedstates that the Green Paper“neither proposes newobjectives nor puts forwardconcrete proposals.” TheCommission is thereforeinvited to adopt a “moreambitious energy policy.”Furthermore, indirectly notingthe underlying abstractnessof the analysis, it is notedthat “energy policy, in thestrictest sense, is to beassociated with foreign andsecurity policies.”Even taking into account allits limits, the EuropeanParliament’s point of view isimportant in order to verifythe ambitions, progress anddelays in the Europeanconstruction process; theenergy question included. Inthe September of 2007, thereport by Jacek Saryusz-Wolski (an EPP member)approved by a wide majority,once again notes a politicalvoid surrounding the EU as a“global player.” It is necessary,as the resolution explains, “todevelop concrete

dispositions, to be inserted inthe treaties, that lead to thecreation of a commonEuropean foreign policy onenergy.” The report also callsfor the appointment of a“high-level representative forforeign policy on energyresponsible for co-ordinatingall policies under the scopeof the common Europeanforeign policy on energy” (ahigh-level representative whoshould act under theauthority of the newly-instituted EU high-levelrepresentative for foreignpolicy and security). Howshould energy supplies andsuppliers be diversified? Apolitically non-neutral reply:“Priority to all those projectsaimed at creating newtransport corridors whichdiversify both suppliers androutes, such as the CaspianSea-Black Sea - EU Energycorridor and in particular theNabucco pipeline” (the“alternative” pipelinepromoted by the USA andEurope that in the futureshould supply the EU withoutcrossing Russian territory,linking central Asia andAustria by way of Turkey), thecreation of new nationalenergy markets on the

model of a Euro-Mediterranean energycommunity; reinforcedcooperation with Algeria andEgypt; the creation of anEnergy Security Partnershipwith the USA; the importanceof Turkey as a transit hub inthe diversification of EU gassupplies; an EU-Russiapartnership that “could onlybe based on the principle ofnon-discrimination and fairtreatment and on equalmarket access conditions.”

Stop and go europeSo, is Europe closer to thedefinition of a true commonenergy policy or not? Yes andno. In terms of the strategyfor fighting climate change, aconcrete path has beentraced with the package ofproposals recently approvedby the Commission, althoughit should be clear that theprocess will be neither easynor painless. The objective isto reduce greenhouse gasemissions by at least 20%and to raise the consumptionof renewable energy to 20%of the total by 2020. Legallybinding objectives areforeseen for the variousgovernments and with arevision of the emissiontrading system (that willimpose a ceiling oncommunity-wide emissions)all the principal sources ofCO2 emissions – in practiceall the major industrial plants– will be encouraged todevelop clean productiontechnologies. The presidentof the Commission ManuelBarroso commented: “thispackage responds to a greatpolitical challenge andprovides the right reply to thequestion of energy security.”However, as one path opensup another remainsproblematic, as is the casewith that described in the

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The utopia of the perfect

market

EUROENERGYFORECAST

by GUIDO GENTILI

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37

years ago, when he was theAmerican secretary of state,Henry Kissinger jokinglyasked: “Who do I call if I wantto call Europe?” As providedfor by the Treaty of Lisbonapproved in the Decemberof 2007, Europe will alsohave a President of theEuropean Council as itsrepresentative. Kissinger willtherefore finally know who tocall. However, it is by nomeans certain that the USA,or Russia, or China will notalso call (or call instead)London, Paris or Berlin. Infact, the great energyconundrum demonstratesthat a true commonEuropean policy in thiscrucial area has yet to beadopted and that currently arealistic overview of theproblems reveals moreunknowns than certainties.

Sarkozy the playerDuring the course of the pastyear, Sarkozy’s France has attimes been the hub aroundwhich Angela Merkel’sGermany and GordonBrown’s Great Britain haverevolved. Sarkozy’s newFrench protagonism wassparked even before he wasinstalled in the Élysée: when

both interested in reviewingthe objectives andregulations of the Europeanauthorities. The Franco-German axis was in evidenceagain during the last NATOsummit in Bucharest whereSarkozy supported thereinforcement of Europeandefences and also (anhistoric shift) confirmed Paris’return to the allied militarycommand in 2009. TheFrench and the Germansmanaged to delay Georgiaand Ukraine joining NATO (adevelopment close to theheart of Putin’s Russia, incontraposition to George W.Bush, Canada and thecountries of Eastern Europe),in part as a result of the roleplayed by the two countrieswithin the energy scenario. Inpractice, European foreignpolicy is firmly in Franco-German hands: allied withthe USA, albeit as aprotagonist, while at thesame time aware that theEU, in terms of energy, has todeal with Russia (of totalimports of gas and oil 45%and 30% respectively comefrom Moscow). However,Sarkozy (to whom Bush paida famously Americancompliment in declaring him

working tools

new Treaty of Lisbon, due tocome into force before theEuropean election in June2009 once the ratificationprocedure has beencompleted. Returning to thequestion: can there be acommon energy policy in theabsence of a true commonforeign policy? The old (andrejected) constitutional treatyprovided for a “Minister of EUForeign Affairs” while theTreaty of Lisbon proposes aHigh-level Representative forForeign Affairs and SecurityPolicy and a EuropeanExternal Action Service, akind of embryonic diplomaticcorps. Are the differencesmerely lexical? Not really,given that a declaration hasbeen adopted – afterpressure from Great Britain inparticular – that underscoresthe inter-governmentalnature of European foreignpolicy and the role played bythe individual member statesand their own foreignministers and diplomaticpolicies. This is not all. Theattribution to the EU (anotherinnovation) of the status of asingle international legalpersonality might suggest anepoch-making change giventhat the EU would thusacquire the capacity to drawup international agreementsbinding for both institutionsand the member states.However, here once again isthe declaration explaining“the fact that the EU has asingle legal personality willnot in any way authorise theUnion to legislate or to actbeyond the competencesconferred upon it by themember states in thetreaties.” In short, while it istrue that a degree ofprogress has been made, it isjust as true that the “spirit” ofthe intergovernmental modelcontinues to prevail. Many

he launched the project forthe Mediterranean Union (22countries, from Portugal toSyria) along the lines of thedream (that subsequentlybecame reality) of thefounding fathers of the EU. Aproject that in a senseinterferes with the EuroMedpartnership launched inBarcelona in 1995 and that –by no means coincidentally –has among its principalfeatures “sustainabledevelopment and energy” onthe basis of the developmentof electrical interconnections,Germany put an immediatebrake on the ambitiousFrench project (there is noplace for an institution“parallel” to the EU declaredMerkel) while Sarkozy gaveassurances that his planprovided for an aggregation“open” to any interestedEuropean nation. This led tothe launch of a Franco-German draft project that, inview of the European plan toreduce CO2 emissions, hasenergy as its true raisond’être All the more so if oneconsiders that historicallyFrance and Germany haveboth opposed the separationof production from thedistribution network and are

to be the “most recentreincarnation of ElvisPresley”) has not beencontent to play on the Paris-Berlin axis. He has, in fact,also been looking to Londonand has constructed a newdraft agreement in the fieldof nuclear powersubsequently to be extendedto other European countries.The pact provides for Britishcompanies having privilegedaccess to French nuclearknow-how in order to acquiremarket leadership in theconstruction of powerstations. The final objective:an Anglo-French platform forthe exportation of nucleartechnology throughout theworld. An economic wager,but also a new Europeanforeign policy variable.

Guido Gentili is a columnist withIl Sole 24 Ore of which he waseditor from 2001 to 2005. Hewas also formerly a columnist

with the Corriere della Serafrom 1996 to 1998 and editor

of the weekly Il Mondo.

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1955 a remarkable yearfor Italy: borns the Fiat600 and a new houseorganThe project on which theengineer Dante Giacosa hadbeen working for the past fiveyears was finally unveiled atthe Palais des Expositions inGeneva on the 9th of March1955. The Fiat 600 was born.It was in that period that thetiny, lightweight yet robustfour-seater utility car began toinvade the streets of Italy,becoming a symbol of anincreasingly urban country thatafter the gruelling years of thewar and reconstruction wasrealising the dream of theconsumer society. In that same period, a youngItalian-American, MikeBongiorno, was preparing atelevision programme, Lascia oRaddoppia (the Italian versionof The $64,000 Question), thatin the autumn was to becomeanother mass phenomenonwith over 10 million Italiansglued to their sets.It was a remarkable year that1955. Anything was possible,but it was hard to imagine thata major company wouldentrust the running of itshouse organ to a gentleman,Attilio Bertolucci, who wasactually a poet by profession.At least it would have beendifficult had that company notbeen led by Enrico Mattei. Theman who had disobeyedorders to liquidate Agip inorder to transform it into Eni;that is to say, the driving forcebehind the industrialdevelopment of the period.Mattei had a very clear idea ofwhat he wanted. Bertoluccihimself recalled as much in aninterview from 1994: “He wasvery precise, ‘the magazinewe’ll produce has to be thesame, democratically possible;that is to say, readable, fromthe President of the Republicdown to the most distant ofour drillers.’ For the rest heagreed to the project I haddescribed to him. Includingthe name. I told him I liked thedefinition of ‘Widlcat’, “GattoSelvatico” that an Americandictionary had applied to oilprospectors: adventurous menwho were also frequentlyadventurers. The definitiondidn’t worry him ‘given thedifficulty in finding oil’, hereplied, ‘you need this wildcaton the job”.

A unique case in thehistory of publishingOver 50 years later, thatperiodical remains a specialcase in the history of Italianpublishing, representing ahappy and unrepeatablecoming together of the worldof business and theintellectual circles, togetherwith Adriano Olivetti’sComunità and Finmeccanica’sCiviltà delle Macchine, alsothe work of poet, LeonardoSinisgalli.A special case because IlGatto Selvatico was manythings: a periodical recountingcompany news, the latestforeign contracts and theribbon cutting ceremonies atthe opening of new plantsand filling stations, but also ameeting place for writers,some of them such as GiorgioBassani and Carlo Emilio

Gadda very well known,others such as GoffredoParise and Natalia Ginzburgwho had still to make theirnames. It began to publishtheir stories illustrated by thedrawings of Mino Maccari. Inthose years the pages of the

periodical were graced by thenames of the best writers andpoets of the time: Berto,Bilenchi, Bevilacqua, Calvino,Caproni, Cassola, Comisso,Dessì, Gatto, La Capria, Pea,Sciascia, Soldati, Elemir Zolla.Then there was the threadthat tied Il Gatto Selvatico to ageneration of journalistsincluding Pietro Bianchi, EnzoForcella and Bernardo Valli,who were also involved in thelaunch of Il Giorno, describedby the Times as the first paperto break with “the traditionalconfiguration imposed by theCorriere della Sera for 50years.” Mattei was also behindthe idea of Il Giorno, seeing itas a means of contrasting theprivate business sector thathad had Eni and himself in itssights for years.However, there was still moreto Il Gatto Selvatico. Even

before the pedagogue AlbertoManzi had begun to teachilliterate Italians to read andwrite, the magazineintroduced Eni workers andtheir families to the newworld of modernity that Italywas about to enter: fromgood manners (how tobehave in restaurants, inqueues, on the beach, on atrain or in a supermarket…)to instructions on shopping,dance steps, photography, keyfilms ad books, usingdomestic appliances and apart-work history of Italy andart. Through to definitions ofneologisms such as “motel,economic boom and scooter”that accompanied thechanging country.

Everything waschanging…After Mattei’s death,Bertolucci’s literary laboratoryremained active for someyears, through to theDecember of 1964. It was notime for poets; under theinfluence of televisionlanguage was changingrapidly and pressing newissues were emerging on theeconomic, political and socialscene: the centre-left, the ’68uprisings, the claiming ofrights.In 1972, during Girotti’schairmanship, the task ofcreating a new periodical wasentrusted to another “great”of Italian journalism, GianniRocca: Ecos, virtually anacronym of the E of energywith economy and ecology.Sergio Ruffolo, who in 1976was to design EugenioScalfaro’s La Repubblica, wasentrusted with the graphics.Thirty years later, with thecollaboration with Italianwriters having been extendedto exponents from thecountries in which Enioperated, Ecos gave way toEni’s way. Through to today, with a newadventure about to getunderway, creating with thewealth of memories and thepride in a tradition “commonground for many peopleworking in different places butunited by common interestsand common goals.” A placein which we can try to readthe signs: because those whoimagine the future sometimesmake it.

wor

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A wildcat and a poet for Eni’s culture

THE WAY WE WEREOUR PAST, OUR MEMORY

by STEFANO LUCCHINI

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ut if investors are loo-king obsessively for tinypricing differences,what is most remarka-ble about these graphsare not the variationsthey show at all, but ra-ther the stunning simi-larities.By stripping out purelyfinancial factors whichdepend more on foreignexchange mechanismsthan they do on the de-mand for energy, whatis revealed is the extra-

ordinary lock-step in which the shareprices of the oil majors all march. Ablip in the price of one, however tiny- at least at this level of "magnification"- tends to be a blip in the price of allthe others.This is because stock market pricingtends to overwhelming reflect a singleexternal factor that, simplifying grea-tly, investors appear to believe Carefulinvestors are much addicted to stu-dying charts like those shown below,which show the pricing on the world’sstock markets of the shares in leadingoil companies over the last year (2007)and then over the last three months.They hope to tease out tiny differencesin the curves that will help them opti-mize their investment strategies.What at first might appear most si-gnificant in these graphs - the hori-zontal "banding" which seems togroup certain companies together - isthe factor that matters least. Since ourpurpose is to look at the broad dyna-mics of the markets as they affect hy-drocarbons companies, we have leftthe quotations in their original cur-rencies. Otherwise the effects we'relooking for would have been swampedby exchange rate phenomena like theslippage of the American dollar, inwhich Exxon and Chevron are quoted,against the euro (Eni, Repsol and To-tal), the pound sterling (BP and Shell)and Norwegian kroner (Statoil).This approach does create one dan-gerous illusion. The more currencyunits in a share price, the more appa-rent movement is amplified. Statoil,whose price is quoted in a currency -the kroner - with a low unit value, ap-pears to be all over the map. In fact itis not has an essentially similar impacton each hydrocarbons operator. Thatis the commodity price of petroleum.This view has the effect of sharply di-scounting the relative quality of singlefirms and their management.What is interesting is that there are thebarest hints here that this nearly sta-

tic relation in the day to day price "re-actions" of different companies' sharesmay be, if not beginning to break up,at least to loosen slightly. To a degree,this is an optical illusion since thethree month chart where this is mostevident tends to show pricing with a fi-ner grain than a 12-month graph thatpacks four times the data points into asingle image. Still, there are early in-dications that the stock market may bebecoming slightly more selective in itsperception of these shares. That couldbe good news for those companieswho are perceived by the stock mar-kets as the most efficient operators.Why now though? The stock marketshave been on the whole quite gene-rous with hydrocarbons shares overthe last eighteen months or so in theface of the spreading perception that"new buyers" in China and Indiaabove all will keep demand high forthe foreseeable future. This has be-come something of an article of faithand is reflected in the steadily rising"long curve" most evident over thelast year. There is though also a shor-ter curve in action, one of a very dif-

ferent sort.America's "sub-prime" disaster firststarted coming to light not quite a yearago, though the danger was not fullyappreciated at the beginning. As its ef-fects became clearer over time, theybegan to drive investors out of theequity, bond and real estate markets.Forex effects became paramount onthe international level, with the dollardriven to new and dramatic lows. Asall these negative factors churnedthrough markets, investors liquidatingpositions found themselves with cashon hand that still had to go some-where. Much of this liquidity driftedinto investments in commodities, stillshowing positive prospects and bac-ked by concrete and comprehensibleassets, the commodities themselves,rather than by barely understandableinstruments based on the creative re-packaging of risk.Petroleum is the king of all commodi-ties and absorbed in consequence atleast its fair share of the liquidity loo-king for a new home. And it did this asthe currency in which most hydrocar-bons commerce is conducted - the dol-

lar - began to weaken dramatically.The upshot has been that today morethan ever the "chips" with which thegreat game of international financeand commerce is played are, in thelast analysis, based on oil. More thangold and certainly more than dollars,the world’s "reserve currency" is todaypetroleum. It holds value because it isvalue. If you find yourself backing aplayer in a game like that, one whereall stakes have suddenly risen to spec-tacular new levels, wouldn't you wantto be certain you were fielding thebest possible team? Just having theright cards is no longer enough. Morethan ever, investors need to know whois playing them.

James Hansen is a consultant for large Italian groupsin financial communications and international

relations. He is American, and came to Italy as vice-counsellor, responsible for economic affairs at the USA

General Consulate in Naples. He became acorrespondent for a number of major newspapers,

including the International Herald Tribune. Hesubsequently held the role of spokesman for Carlo De

Benedetti and Silvio Berlusconi, before becominghead press officer at Telecom Italia.

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data

As of 11-04-2008

28-02-2008 89.38 162.4 23.15 18.28 18.04 5.48 89.02 23.08 50.4229-02-2008 87.01 160.9 22.92 18.09 17.81 5.46 86.66 22.85 49.993-03-2008 87.75 159.5 22.62 17.71 17.42 5.405 87.2 21.99 49.64-03-2008 86.69 159 22.47 17.39 17.06 5.36 86.73 21.15 48.885-03-2008 87.19 158.6 23.35 17.74 17.4 5.47 88.79 21.72 49.696-03-2008 84.51 158.4 23.04 17.37 17.01 5.345 87.8 21.19 48.787-03-2008 82.49 156.1 22.59 17.10 16.68 5.285 85.26 20.89 48.16

10-03-2008 82.46 151.6 22.38 17.13 16.75 5.34 84.73 20.95 48.1311-03-2008 86.68 155 22.82 17.26 16.82 5.385 88.16 21.79 48.7812-03-2008 85.97 157.1 22.54 17.46 17.08 5.455 86.73 22.16 48.9913-03-2008 87.05 155.9 22.17 17.26 16.87 5.34 87.04 22.54 48.3514-03-2008 85.91 153.4 22.11 17.20 16.88 5.295 85.34 22.52 47.9517-03-2008 85.79 149.8 21.44 16.89 16.46 5.1 84.19 21.58 46.0618-03-2008 88.47 151 22 17.16 16.8 5.19 86.12 22.35 47.3119-03-2008 84.43 149 21.68 17.05 16.57 5.115 81.89 22.08 46.8620-03-2008 85 149 20.87 16.42 15.98 4.96 83.21 21.86 45.8321-03-2008 85 149 20.87 16.42 15.98 4.96 83.21 21.86 45.8324-03-2008 85.95 149 20.87 16.37 15.98 4.96 84.01 21.86 45.8325-03-2008 85.2 151 21.34 16.83 16.38 5.15 84.54 22.46 46.8726-03-2008 86.26 151 21.41 17.06 16.57 5.155 84.96 22.43 46.9627-03-2008 86.2 152.7 21.64 17.07 16.63 5.12 84.4 22.52 47.1928-03-2008 85.22 153.5 21.59 17.12 16.59 5.03 84.5 22.27 46.9131-03-2008 84.58 152.6 21.6 17.43 16.96 5.12 85.36 21.86 47.041-04-2008 87.02 155 21.82 17.53 17.05 5.12 86.74 22.46 47.712-04-2008 88.52 157 22.14 17.55 17.11 5.205 87.51 23.49 48.53-04-2008 88.23 157.2 22.33 17.75 17.46 5.225 87.72 23.45 48.974-04-2008 88.74 157.3 22.53 18.04 17.69 5.28 88.05 23.8 48.637-04-2008 88.92 162.6 22.8 18.21 17.95 5.355 88.27 24.45 48.98-04-2008 89.61 163.3 22.91 18.39 18.07 5.37 89.28 24.43 49.29-04-2008 89.7 161.7 23.17 18.55 18.28 5.455 89.95 24.04 49.85

10-04-2008 89.55 164.4 23.36 18.60 18.27 5.5 89.6 23.92 49.95511-04-2008 88.62 164.6 23.09 18.52 18.2 5.47 88.8 23.53 49.05

Total S.A.

Repsol YPF S.A.

BP PLCChevron

Corp

Royal Dutch Shell

Class B

Royal Dutch Shell

Class A

Exxon Mobil Corp

ENI S.p.A.StatoilHydro ASA

(€)(€)($)(£)(£)$Prezzo in £€NOK

(14,4%)(2,3%)(2,3%)(8,4%)(12,1%)(2,4%)L3M Performance (12,0%)(7,6%)8,0%

What matters the mostis what is not there

oilbodoni_num1 ING.qxd 27-05-2008 11:42 Pagina 39

he oil market seemsto be possessed by anunstoppable frenzy ofrising prices. Ratherlike an explorer who,having verified theconsistency of theground, strides confi-dently towards an un-known goal, so toohas the price of crude,after a brief spell atthe hundred dollarsper barrel mark at theend of last year, re-

mained at three digits. In 2004 it wassaid that surpassing the fifty dollars

per barrel threshold would imply direconsequences for the world economy.However, nothing has happened. Thesame admonitions were repeatedwhen hundred-dollar barrels appea-red on the horizon. Should we con-clude that nothing will happen thistime also? Perhaps it’s too early totell, but up to now at least, no sati-sfying answer has been forthcoming,neither about the consequences norabout the reasons that have led to thestatus quo. We seem to have run outof simple explanations. The Iraniannuclear question? The depletion of oilresources? The latest theory is finan-cial speculation driving prices where-

ver it likes, well beyond anything thatbasic supply and demand could ju-stify. Still, with last summer’s financialmarket crisis – which arose from sub-prime loans, the until-recently little-known market of mortgages for lesstrustworthy clients – even high-powe-red finance no longer seems almighty.According to some statistical analyses,these “speculators” are supporting themarket more than anticipating anddriving it, and perhaps accentuatingthe price fluctuations with an “ava-lanche effect” that is inevitably trigge-red by their actions. International po-litical news reports have almostbecome monotonous, as all the news

is bad. The instability in the MiddleEast appears to be chronic and at veryhigh levels of tension. There is anabundance of oil there, but the inter-national companies can only operatein a limited fashion. Exploitation ofnational resources is a delicate politi-cal subject for public opinion in thosecountries. Without investments, ho-wever, there cannot be an increase inthe unused oil production capacity,which intervenes whenever supplyside problems arise, such as an acci-dent or sabotage to oil facilities. Todaythat safety margin has diminished andis mainly in the hands of Middle Eastcountries that are members of Opec,

an organization made up of the mainoil exporters. This has not alwaysbeen so. In the eighties, unused pro-duction capacity was much higher,due to causes not planned by produ-cers. Due to the oil shock of the 1970sthere was a changeover from oil to nu-clear fuels, oil consumption collapsed,non-Opec production increased, ren-dering a large part of Opec’s capacityredundant. With the collapse in oilprices in 1986 (the counter-shock) in-vestments languished during the1990s, until the surplus capacity wasreabsorbed. Now we fervently wishthat Opec producers would make in-vestments to rebuild that surplus ca-pacity. However, a simple economicreason poses an obstacle. Why investto increase oil profits, when thesegrow beyond the wildest imaginingswithout doing anything? Just the priceincrease that has taken place over thelast decade has conveyed such finan-cial resources to the producing coun-tries that they will shortly overtakethe absorption capacity of their owneconomies. The oil production secre-tary of a producing country and the

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1.7 2.8

1.0

29.2

36.0

27.5

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12.7

17.9

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0

10

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006

20

30

40

50

60

70

80

Source: IEA spot price of Arabian light (1970-1985); IEA Brent spot price (1986-1987); PLATT’s, Dated Brent spot price (1988-2007)

72.51985. Opec production decreases to 15,7 Mb/d. Saudi Arabia increases production unilaterally

1996. Venezuela opens to foreign companies after the nationalization of 1975

1980. The war starts

1991. Iraq is defeated

2001. Attack on the Twin Towers

1979.Islamic revolution in Iran

1986. Official prices of crude oil system is abandoned

1971. Start Opec nationalization

1990. Iraq invades Kuwait and threatens Saudi Arabia

1997. Opec increases production in Jakarta

1998. Crisis in Asia

1999. Opec cuts production

2003. U.S. military interven-tion in Iraq

1994. Record increase of 900 Kb/d in production of North Sea1988. Brent

succeed as crude marker

2005. Katrina hurricane struck the Gulf of Mexico

2004. Opec abandons the 22-28 $/bl range of Opec basket price

1973. 4° Arab-Israeli war. Embargo against U.S.

1974. Opec increases official price

CRUDE PRICE AND MAJOR EVENTS DOLLARS/BARREL (annual averages)

Crude prices movements are often associated with major international political and economical events.

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-2008

CRUDE PRICES Brent futures at 1 month (weekly averages)

Over the last three years the price of crude has alternated increase phases with decrease phases, maintaining anincrease trend in the background. This graph shows weekly quotes on the basis of futures contracts first positionon Brent crude, as its prices represent the most important marker in the world oil market in the composition ofsale-purchase contracts for crude.

Due to the two oilshocks of the 1970s

there was achangeover from oilto nuclear fuels oil

consumptioncollapsed and non-

Opec productionincreased

rendering a largepart of Opec’s

capacity redundant

Tby GIAMPIERO

MARCELLOOffice Studies Eni

Source: ICE

oilbodoni_num1 ING.qxd 27-05-2008 11:42 Pagina 40

state-owned company that is theiroperations agency do not reason likea private company. Priorities are dif-ferent. For the governments of SaudiArabia, Kuwait, and the United ArabEmirates, oil is a resource to be usedfor the benefit of future generations.The knot tied on the oil market willnot be easily untied. We are in a tur-bulent era, in which traditional pointsof reference are disappearing. Thereare opportunities but also risks. Thesingle escape hatch is observing factswith an unprejudiced mind, and tobe ready for the unthinkable.

number of open contracts

2005 2006 2007 2008

Source: NYMEX; Eni elaborations

dollars/barrel120

100

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53-

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081-

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14-

03

(weekly values)

Long net positions of non commercial operator

Futures price at one month for Wti

LONG NET POSITIONS AND FUTURES PRICE FOR WTI The graph shows the net positions of noncommercial operators at NYMEX (NewYork Mercantile Exchange) in relation tofuture contracts for WTI crude (Crude oillight sweet) and the futures price trend atone month for the WTI as of 2005. Suchdata is collected weekly by the CFTC(Commodity Futures Trading Commission)and are concerned solely with futurescontracts. Non-commercial operators arethose that have no ties with the rawmaterial and take up positions in thefutures market solely for speculativepurposes, on the basis of certain priceexpectations. Hedge funds, pensionfunds, investors that diversify theirportfolio in the commodity markets andother financial operators are among thenon-commercial operators. In theterminology of financial markets anoperator goes “long” when he buysfutures contracts, and goes “short” whenhe sells them. Long net positions areobtained from the difference between“long” positions and “short” positions.

Crude price in current dollars Crude price in real dollars

Real price deflated with export prices from industrialized countries Sources: for crude price see graph 2; deflator: IMF

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1.8 2.1 2.5 2.8

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17 15.81720.7

19.1

12.717.9

28.424.5 25

28.8

38.2

54.4

65.1

72.5dollars/barrel

1970 1975 1980 1985 1990 1995 2000 2005

CRUDE PRICE IN CURRENT AND REAL DOLLARS (annual averages)

The price of crude oil in real terms has left the levels reached in the 1970s far behind. In this graph the price ofcrude is shown in relation to the price of exports from industrialized countries, which are also the main buyers ofthe crude oil traded on the international market and the main suppliers of goods and services for oil exportingcountries.

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1970 72 74 76 78 80 82 84 86 88 90 92 94 96 98 2000 02 04 06

millions of barrels per day Source. Eni compilation of IEA and ONU data

non OCSE countries

OCSE

WORLD CONSUMPION OF OIL

World consumption of oil has not always increased. By the end of the1970s, after two oil shocks, there was a slowdown period, and then it wentdown from more than 6 million barrels/day in just over four years, from1979 to 1983. Over the last years the consumption from OCSE areas havenot increased, but they have gone down, although not by much.

Unused capacity/world consumption

Crude oil price

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80 dollars/barrel as percentage of oil world oil consumption

Sources. Crude oil price: graph; unused production capacity us a percentage of world consumption: Eni1970 72 74 76 78 80 82 84 86 88 90 92 94 96 98 2000 02 04 06

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18%

PRICE AND UNUSED CAPACITY OF CRUDE OIL

We have observed in the past an inverse relationship between the price ofcrude oil and, at world level, the unused production capacity for crude oilas a percentage of oil demand. It should be pointed out that this is arelationship that can be applied in an exact manner.

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Quotidiano.net2 march 2008Ahmadinejad in Iraq: firstofficial visit after 30 yearsMahmoud Ahmadinejad hasbeen received in Baghdadby his Iraqi counterpart JalaTalabani. This was the firstofficial visit by an Iranianpresident to Iraq since 1979,when the two countrieswent to war for the nexteight years.

La Repubblica11 march 2008Goldman Sach banks onblack gold reaching $200a barrel within the yearIn January the idea of crudeoil at $200 a barrel was buta figure written on theoptions contracts with whichthe operators protectthemselves against extreme

events and which becomeso much waste papershould that event not occur.Things are different now andcrude oil at $200 hasbecome a serioushypothesis for analysts. Theexperts at the GoldmanSachs merchant bank claimthat if the Americaneconomy starts growingagain or supply problemscrop up the price may riseas high as $150-200 abarrel.

15 april 2008 A full tank in the country,from the oil treePetrol from trees. Energyfrom fields and forestswithout depriving anyone oftheir daily bread and withoutsending cereal prices skyhigh. The proposal comesfrom researchers at theUniversity of Massachusetts-Amherst. The secretingredients in this virtuousprocess are waste products.The second-generationbiofuels are obtainedthrough flash pyrolysis: afterbeing dehydrated andchopped, the biomass isheated at high speed to

break down its molecules.Oil produced in this way canthen be treated for use as aliquid fuel. Environmentallyimpeccable, the process willtake another ten years or soto come to market.

Staffetta quotidiana19 march 2008Political crisis in KuwaitFollowing the massresignation of all theministers in opposition tothe approval of a rise inmonthly salaries decreed byparliament, Sheikh Sabah IVdissolved the assembly andcalled an early election forthe 17th of May.

Apcom18 march 2008Women at the wheel inSaudi ArabiaThe council of the Wahabita

kingdom has approved amotion authorising womento drive cars between 7 amand 8 pm. They must,however, be aged over 30,have the consent of theirmuharrim (male tutor:father, brother or husband),be wearing veil and have nomake-up. The driving licensewill only be issued after acash deposit is made tocover eventual damages.

Il Sole 24 Ore18 march 2008The Energy IntelligencePrize goes to ScaroniThe Eni Managing Director,Paolo Scaroni, is the winnerof the 2008 edition of theprestigious “PetroleumExecutive of the Year” prizeawarded by EnergyIntelligence in collaborationwith the International HeraldTribune. Scaroni thusbecomes the first Italian toreceive the sought-afteraward, universally held to bethe oil industry’s most

important. Each year, thePetroleum Executive’s awardgoes to the manager who, inthe opinion of his peers, hasmade the greatestcontribution to the oilindustry.

20 march 2008Marghera rediscoverschemicalsAfter eight years of vetos,the environmentalredevelopment of Marghera,the site of an Italianchemical industry cluster, isfinally due to get underway.The ministerial cabinet hasauthorised the balancing ofCVM and PVC productionrequested by Ineos Vinyl, theleading European PVCproducer, automaticallyconceding theenvironmental impactvaluation that the Ministry ofthe Environment hadeffectively blocked for years.Ineos has invested heavily inMarghera over the last twoyears (over 60 millionEuros) and had given thegovernment an ultimatum,threatening to move itsbusiness elsewhere. Withthis authorisation, work will

ollowing the great success of NoLogo (2002), adopted by the no-global movement as theirmanifesto, Naomi Klein returnswith her latest book The Shock

Economy: The Rise of DisasterCapitalism. The text “debunks the mythof the pacific and democratic triumphof the free market economy”: from thewar in Iraq to Hurricane Katrina thatdevastated New Orleans, Kleindescribes the doctrine exploiting publicdisorientation in the wake of greatcollective shocks (wars, terrorist attacks,natural disasters) to impose unpopularand undemocratic economic measures,a strategy also described in The ShockDoctrine, a short film by AlfonsoCuaron and Klein herself andpresented at the Venice Film Festival. “Istarted researching the free market’sdependence on the power of shockfour years ago, during the early days ofthe occupation of Iraq,” writes the

author in the introduction. “I reportedfrom Baghdad on Washington’s failedattempts to follow "shock and awe"with shock therapy... Afterwards Itravelled to Sri Lanka, several monthsafter the devastating 2004 tsunami,and witnessed another version of thesame manoeuvre: foreign investors andinternational lenders had teamed up touse the atmosphere of panic to handthe entire beautiful coastline over toentrepreneurs who quickly built largeresorts, blocking hundreds ofthousands of fishing people fromrebuilding their villages.” WhenHurricane Katrina then struck NewOrleans, continues Klein, "it was clearthat this was now the preferredmethod of advancing corporate goals:using moments of collective trauma toengage in radical social and economicengineering.”

F

The Shock EconomyTitle: ShockEconomyAuthor: NaomiKleinPublisher: RizzoliData: 2007, 624pagesPrice: € 20.50

he Earth’s ecological balance canonly be saved by a radical revisionof our relationship with nature. Arevision that in concrete terms isstill a long way off. Al Gore, who

received the Nobel Peace Prize in 2007,explores the full breadth of ecologicalthinking to present data and theories onthe development of the earth and itspollution and tackles pressing problemssuch the greenhouse effect, thedemographic explosion, thesustainability of various lifestyles, energyresources, desertification and themelting of the glaciers and rising sealevels. According to the former vicepresident of the United States (1993-2001), “the climate crisis also offers usthe chance to experience what very fewgenerations in history have had theprivilege of knowing: a generationalmission; the exhilaration of a compellingmoral purpose; a shared and unifyingcause; the thrill of being forced by

circumstances to put aside the pettinessand conflict that so often stifle therestless human need fortranscendence… In the past we facedand we accepted other great challenges.We gave women the right to vote. Wecured polio and contributed to theeradication of small pox. We set foot onthe moon. We have already resolved aglobal environmental crisis, the hole inthe ozone layer, because Republicansand Democrats, rich nations and poornations, businessmen and scientistsunited to find a solution.” For Al Gore it isclear that the environmental crisis isrooted in every aspect of human societyand that the response should becommensurate with the gravity of thesituation. What is required isunprecedented global mobilization thatalso impacts demographic trends,technological choices and education.“We can no longer wait to put an end tothis crisis,” writes the author. “We haveall the indispensable tools, with theexception of perhaps one: what ismissing the necessary political will tobring about real change. But thanks toGod, in our democracy, political will is arenewable resource.”

T

Earth in the BalanceTitle: Earth in theBalanceAuthor: Al GorePublisher:Bompiani Data: 2008, 564 pagesPrice : € 21.00

number one

press release from Italy

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he problems and prospects ofavailable energy sources is thetheme of With All PossibleEnergy, the latest book byLeonardo Maugeri, Eni’s director

of strategies and development and oneof the world’s leading experts in thesector. Oil, nuclear, coal, sunlight,biofuels, hydrogen, water, natural gas:the author illustrates problems andprospects relating to each energysource, helping to deflate myths anddent mistaken convictions. Maugeri analyses the problems anddevelopments regarding these sourcesin a simple, straightforward languagethat takes nothing away from thescientific rigour of the research. According to the author the greatchallenge facing our century is that ofovercoming our excessive dependence

on fossil fuels (oil, coal, gas), thecombustion of which pollutes theplanet while providing over 80% ofglobal energy needs at relatively lowcosts. In order to escape this “energytrap” Maugeri suggests a series ofrealistic and stringent solutions,identifying efficiency as the onlypossible short-term path, while in thelong term only scientific research holdsout any hope of freeing us from thetraditional sources of energy. Theconclusion reached by the author isthat thanks to technologicaldevelopment in the future the solutionshould be solar power. The book ispublished by Sperling and Kupfer andhas been on the shelves since the 26thof February 2008.

T

and from the world

book

begin on technologicalinnovation and safety andterritorial safeguardingprojects.

20 march 2008The oil industry majorsmeet in BaghdadThamir Ghadhban, theenergy adviser to the Iraqipremier has announced thatthe government will paybetween 2 and 2.4 billiondollars to five major foreignoil companies in order toincrease production of crudeoil by half a million barrels aday. Each of the companieswill be assigned an oil fieldwith a two-year technicalcontract. It is not yet clearwhether the payment will bein oil or cash.

22 march 2008Moscow pegs foreigninvestmentsThe Duma has approvedlegislation dictating limits onforeigners wishing to investin strategic areas of theRussian economy. The 42sectors considered to bestrategic account for overhalf of the country’s GNP.They include: nuclear

energy, natural resources,defence, aviation, the spaceindustry,telecommunications, andthe media. Under the newregulations a companycontrolled by a foreigngovernment will be unableto obtain control of aRussian enterprise in thesesectors, while a privatecompany wishing to obtain aholding of over 50% willrequire the authorisation ofa special committeepresided over by the PrimeMinister Vladimir Putin. Thelegislation does not affectlicenses already obtained.

4 april 2008Chavez’s crude oil moreexpensiveThe Venezuelan governmenthas put a fiscal bite on theearnings of the oil industrymajors. From the 1st of May2008, whenever the price ofblack gold exceeds $70 abarrel, new tax rates willcome into force. The ratewill be 50% when the priceof crude oil is between $70and $100 a barrel and 60%once the $100 threshold isexceeded. The new taxes

will also be applied to thenational oil company Pdvsa.

9 april 2008Eni technology for EgyptEni has signed amemorandum ofunderstanding with Egas, theEgyptian gas company, andEehc, the companymanaging electrical energy,for a feasibility studyregarding the application oflatest generationtechnologies to a number ofEgyptian electrical powerstations. The newtechnologies will bringenvironmental benefits andwill permit energy savings ofbetween 20 and 50% Partof the gas saved will bedestined to covering thecosts of the implementationof the project.

15 april 2008Syria, Beijing finances arefineryThe Syrian Oil Ministry hassigned an agreement withthe Chinese CNPC companyto build a 100,000barrels/day oil refinery inAbu Khashab a Deir el-Zor,by 2011. Under the

agreement, the Chinesecompany will cover up to85% of the constructioncost, compared with 15%from the Syrian partner,while Beijing will examinethe possibility of financingthe Syrian contributionthrough a loan to Damascus.

17 april 2008Energy, the Japanesegovernment blocks Tci“A question of nationalsecurity”: Japan’sgovernment has blocked theattempt by a Britishinvestment fund to doubleto 20% its current 9.9%share in the J-Power energydistribution company andpower wholesaler, which isabout to build a nuclearplant. According to someanalysts, this is anotherdemonstration that theJapanese market is not trulyopen to foreign investorsand that the local authoritiestake a poor view of theactivities of the internationalfunds.

Corriere della sera26 march 2008Emirates: 100 milliondollar project for the firstArab nuclear stateThe United Arab Emiratescould be the first Arab stateto get itself a nuclearprogramme. Thegovernment has, in fact,approved the investment of100 million dollars in anational agency for thedevelopment of nuclearenergy and in Januarysigned a cooperation treatywith France. The Emiratesclaim they need nuclearenergy for the desalinizationof water and to produceelectricity without drawingon their proceeds from oil ,of which they are the world’s8th largest producer and 3rdlargest exporter.

3 april 2008Eni-Gazprom, closercooperationEni and Gazprom haveexchanged non-Italian

“With All PossibleEnergy”

Title: “With AllPossible Energy”Author: LeonardoMaugeriPublisher:Sperling & KupferData: 2008, 288pagesPrice: € 20.00

he Asian countries with theirincreasing hunger for energy andclimate change, the gas pipelinewars and crude oil breaking the100 dollars a barrel price barrier:

elements of an energy challenge that isincreasingly becoming an acutely

political question affecting both nationalsecurity and international relationsbetween consumer and producernations. This book by Alberto Clò, aleading Italian energy expert, tackles thisproblem in the awareness that there areno easy solutions and that in any casethe field needs to be swept clear of theusual clichés: the market is capable ofcuring all ills, that fossil fuels are aboutto run out, that renewable energysources are a universal panacea, that areturn to nuclear power is just aroundthe corner, that saving energy is morevirtuous than producing it (whilereserving the right to protest when it isscarce).

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The Energy RebusTitle: The EnergyRebus: Politics,Economics and theEnvironment Author: Alberto ClòPublisher: Il MulinoData: April 2008,194 pages Price : € 15.00

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lternative power sources andtheir apparent inadequacy toreplace fossil fuels, the interestslinked to oil control and thegeopolitical power arising from it,

the innovative projects for exploitingrenewable sources and their evidentapplication limits, the effects of climatechanges and its causes: all thesesubjects are the background to theriveting plot of this novel, translated forthe first time into Italian.

ALiquid Sun

Title: Liquid SunAuthor: EdwardMoor Publisher: EllinSelaeData: 2006, 318 paginePrice: € 14.00

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assets. The agreementbetween the two gas colossiwas reached during a seriesof meetings in Russia withinthe ambit of which thepowers that be at Eni, Eneland Fineccanica werereceived by Vladimir Putin.In particular, the agreementwill involve firstly Libyawhere Eni has been presentfor some time and thenEgypt. During the course ofthe meetings the creation ofan Italo-Russian bank wasproposed on the initiative ofIntesa-San Paolo. The newbank will serve to assistsmall and medium business,but could also have a role inmajor energy projects.

18 april 2008Eni pact with Gazprom.Exchange on Libyan wells An Eni-Gazprom swap inLibya. The group led byPaolo Scaroni could grantthe Russian giant a share ofthe Elephant maxi-field, oneof Libya’s largest withproduction of close on 140barrels/day last year. Thereserve is currentlycontrolled 50% by theLibyan State company Noc

and 50% by Eni (with aone-third share held byKorea’s Knoc). The Italiangroup is expected to sell itsstake under the terms of thetransaction agreed a yearago with Gazprom when Enipurchased a series of assetsfrom the former Yukoscompany.

Dal mondo

The New York Times27 February 2008Raul Castro hints atchange, but Cubaremains cautiousDuring his first official outingsas president of Cuba, RaulCastro met neither the mostradical South Americanleaders such as Hugo

Chavez and Ignacio Lula daSilva, nor the functionaries ofthe Chinese government, butrather the secretary of stateof the Vatican, a traditionalenemy of Communism andcritical of the abuse ofhuman rights on theCaribbean island. Thedecision to initiate hismandate by meetingCardinal Tarciso Bertonerepresents a possibleopening towards Europe andthe United States andreflects an intention to putideology to one side in orderto achieve the objectives thathis brother frequently onlyillustrated.

The Wall Street Journal27 February 2008Gazprom enters the coalbusinessGazprom, the world’sleading producer of naturalgas, has announced theacquisition of Suek, Russia’slargest coal producer. Theagreement involves an

exchange of assets that willextend Gazprom’s businesson the electricity market. Thestrategy is that ofincrementing domestic useof coal in order to havemore natural gas to export.The stock market debut isplanned for the fall.

15 april 2008No more long-termcontracts on Algerian gasWith energy prices at recordlevels, Algeria hasannounced plans toabandon long-term contractsin order to boost revenuesfrom its natural gas reserves.The Algerian Oil Minister andOPEC chairman, ChakibKhelil, has explained that hewill not be signing anyfurther long-term gascontracts but will instead befocusing on short-termagreements, to enable theproducer country torenegotiate gas prices everytwo years. Algeria suppliesmore than 11% of thenatural gas consumed in theEuropean Union and is oneof the largest producers ofliquefied natural gas.

16 april 2008China buys 1% of BPAnother move from Chinaon the playing field of themain European oilcompanies. After its recentincursion into Total, Beijinghas acquired a 1% stake,through a sovereign fund, inthe capital of BP, worthapproximately 2 billiondollars. The buyer is Safe(State administration offoreign exchange), the fundthat previously acquired1.6% of France’s Total. WhySafe is investing in BP andTotal is not clear. Analystssay that since the Chinesegovernment controls fuelprices on the domesticmarket, the move could beintended to balance the risein oil prices, which is costingthe government billions ofdollars. Generally speaking,higher oil prices meanhigher dividends at oilcompanies.

press release from Italy

t a time when public concernabout climate change and thetraditional power sources seemclose to the beginning of theirend, the solutions put forward

from time to time often seem likepanaceas but there is no hint of an

advent of changes to our lifestyles, whichare the cause of all this. So holds PatMurphy, the book's author and chairmanof Community Solutions, a non-profitorganization that provides information onnew lifestyles based on the use of smallamounts of energy. “Plan C” exploresthe risks incidental to continuing to livelike we do today. The answer, accordingto Murphy, will not come about throughtechnology or renewable sources, butonly through personal change. This is theonly way we can reduce carbon dioxideemissions. Energy saving must beapplied to every aspect of our daily lives,starting from home and food and goingon to include transport. By learning to livewith less energy consumption, we willfollow a more sustainable way of life.This – according to the author – is whatwill save the world.

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Plan CTitle: Plan C:Community SurvivalStrategies for Peak Oiland Climate ChangeAuthor: Pat MurphyPublisher: NewSociety Publishers Data: Soon to bepublished (June2008)Price: $ 13.57

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he life of a company as narrated byone of its employees. This, in short,is the story told by Marcello Colitti,who joined in Eni in 1956 in theeconomic studies service before

moving on to other top roles includingthe vice presidency of Agip, Enichem andEcofuel. Colitti’s account highlights how

Eni’s history mirrors that of Italy. This isbecause through its provision of low costenergy, the energy group took on the taskof encouraging Italian economic take-offin the early ’60s. However, Colitti’s bookalso portrays a man who has conductedhis career as a mission, as a desire toserve the company and participate in theregeneration of his country. The authoralso talks of Eni’s ‘double soul’ in thoseyears, with the more intellectual and left-wing study service contrasting with moreindustrial and ‘Western’ thinkers. Thesetwo souls, recounts Colitti, were perfectlysummed up in Enrico Mattei. The ex-manager’s book therefore profiles Matteias well as his successor, Eugenio Cefis.

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Stories from EniTitle: Eni. Storiesfrom inside thecompany’ Author: MarcelloColitti Publisher: Egea Data: 2008, 280 pagesPrice: € 14.00

EidosPublisher: Fabiano

Data: 2007, 360 pagesPrice: € 8

he authors probe the linksbetween oil and politics,highlighting the great influenceof lobbies in state decisions anddescribing current-day political

and economic goals. The constantincrease in the price of oil, the heavyuse of power by the West and byChina, the role of the United States andthe new alliances to preservediminishing resources.

TThe black book of oil

Title: The blackbook of oil Author: SeifertThomas, WernerKlaus Publisher: Ed.Newton & Compton Data: 2007, 360pagesPrice: € 9.90

idos is the first Italian magazine dealing withsubjects linked to the measurement ofconsumption of electric power, gas, waterand heat; the publication caters to the needsof a strongly fermenting sector, both in the

production and regulation, with “market”implications dictated by the liberalization ofguidelines on gas and electricity and of the newtrusts for managing hydro resources, an area whichin the coming years will attract the attention ofplayers both old and new.

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n essay on the subject of afuture depletion of fossil fuels ina way still unheard of in Italy.Midway between thecatastrophe predicated by some

ideological environmentalists and theperhaps too-optimistic vision ofscientists and technologists, it upholdsvalues that, although having old roots,seem quite new to our eyes:rationality, sobriety, responsibility.Within a scenario in which the end offossil fuels is taken for granted and therace to control natural reserves isincreasingly rapid, the book unveils theanomaly of half a century of economicgrowth fed by resources that are finiteby definitionAn energy reserve – thatof fossil fuels – that was producedover hundreds of millions of years. Inthe case of oil, the production-

accumulation rhythm has been 14thousand tons per year. That’s twograms a year for each human beingalive at present. Thus emerges thetheory of the two authors Luigi Sertorio– a physicist and an expert on thesubject – and Erika Renda, hiscollaborator: either we turn over a newleaf or it’s the end. The hundred wattsthat give the essay its name refers tothe external power that each individualmust add to the eighty watts of theirown internal power. From this additionwe obtain the energy required tomaintain the current quality of life.Before oil reserves are exhausted,should humanity wish to face itsenergy needs, it must necessarily useother energy sources that cannot bedepleted and that do not pollute.According to the authors a solutionmay be found through debate anddialogue between science, technologyand ethics. And for the authors,another thing is certain: in post-oiltimes, energy can’t be anything butinexhaustible, while everything else willhave to be recycled.

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A hundred watts for thenext billion years

Title: A hundredwatts for the nextbillion yearsAuthor: LuigiSertorio, ErikaRendaPublisher: Ed.Bollati Boringhieri Data: 2008, 144 pagesPrice: € 16.00

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El Universal29 February 2008Agreement BetweenPdvsa and Eni for theExploitation of the Junin5 BlockPetróleos de Venezuela Sa(Pdvsa) and Eni have signedtwo agreements for thestudy, the certification andthe quantification of thereserves in the Junin 5 blockof the Orinoco River oil belt.The groups will form a joint-stock company, 40% ownedby Eni and 60% by Pdvsa,for the exploitation on anarea of 60 km2 containingthe world’s largest deposit ofheavy oil, estimated at atotal of 1,300 billion barrelsof oil.

Financial Times14 march 2008Nigeria targets $20 billioninvestment in gasUmaru Yar'Adua, Nigerianpresident, wants to raise$20bn from energycompanies to invest inharnessing gas reserves tosolve the country's chronicpower crisis. In Nigeriapower cuts are perhaps thebiggest barrier to economicgrowth. The governmentmay require producers to setaside as much as 25-30%of its gas for domestic useas well as hoping to increaseexports to the USA, Asia andEurope.

14 march 2008Russia and Ukraine endgas stand-off Ukraine and Gazprom havereached an agreement onnatural gas supplies, puttingan end to last week’s tensestand-off in which theRussian energy companyhad halved supplies to

Ukraine, a key transit arteryto Europe. The agreement removescontroversial middlemancompanies from the multi-billion dollar gas tradebetween Russia, Ukraine andcentral Asian gas suppliers.

3 april 2008 China buys $1.9 billionstake in TotalThe Chinese state hasbought a 1.6 per cent stakein the French oil companyTotal for 1.9 billion dollars.The purchaser is Safe, thebody that manages China’s1,650 billion dollars offoreign exchange reserves inthe Asian country. Accordingto certain sources Safe’sacquisition of the Totalshares began some monthsago through negotiationswith representatives of theFrench company.

15 april 2008Russia prepares for firstfall in oil production in10 yearsFive years ago, the rapidgrowth in Russian oil exportswas seen as the cure for USand European dependency

on oil from the Middle East,the largest potential sourceof earnings for theinternational companies andthe only solution to China’sinsatiable thirst for energy.Today, however, Russia ispreparing for its first fall inproduction in 10 years: thefirst four months of 2008closed with a 1% productiondecrease, bringing total oiloutput to 9.76 millionbarrels/day, compared with9.87 million last year whenproduction rose by 2.3%.According to Leonid Fedun,deputy chairman of Lukoil,Russia’s largest independentoil company, over the next20 years the country will beable to guarantee productionlevels of around 8.5-9million barrels/day only ifcompanies invest billions ofdollars in working new fields.

17 april 2008Nigerian oil productioncould fall by one thirdNigeria risks losing one thirdof its oil production by 2015unless it finds a way toboost investment in jointventures with foreign energycompanies. The warning

comes from an internalreport drawn up by energyadvisors to President UmaruYar’Adua. Their analysisunderlining the need for thegovernment to providefunding for the national oilindustry follows an internalmemo at Shell observingthat the financial problemsof the Nigerian governmentare putting the country’sjoint venture with the Anglo-Irish company at risk.

Al Quds Al-Arabi29 march 2008The Arab League divided10 of the 22 members ofthe Arab League failed toparticipate in the meeting ofrepresentatives of the Arabcountries in Damascus.Among the absentees wereSaudi Arabia and Egypt,which accuse the Syrianpresident Bashar Al Assad ofobstructing the presidentialelection in Lebanon.

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eijing is building a superpowerfuture in Africa. This book is ajournalistic, political and socialsurvey of the ties between bothareas, from the preambles

during the Mao years and from “Africansocialism” until the present day, withthe Chinese race for oil andunderground riches. The story of thebilateral relationship and, perhaps, of anew form of colonialism, useful tounderstand the geopolitical reasons,economic impulses and socialrepercussions of a change in worldbalance that is making Africa theconquered land of Chinese capitals.

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Title: Chinese safari.Oil, resources,markets. Chinaconquers AfricaAuthor: Brighi C.,Panozzo I., Sala I. M.Publisher: O Barrao Edizioni Data: 2007, 108pages.Price: €12.50

ccording to every theoryrecognized by the scientificcommunity, the amount ofmethane and carbon dioxide inthe atmosphere during the last

10,000 years should have diminishedat least until the start of the industrialage. Instead, traces found in ice coresextracted from the Antarctic show that5,000 years ago, methane beganincreasing for no apparent reason. Withthis feeble indication begins thescientific investigation ofpaleoclimatologist William Ruddimanwhich, in this book, shows how maneven in pre-industrial ages hadinfluenced climate by creating a higherconcentration of greenhouse gases(carbon dioxide and methane) andtherefore causing an increase intemperature.

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The plough, the plague,the oil

Title: The plough, theplague, the oilAuthor: WilliamRuddimanPublisher:Università BocconiData: 2007, 260 pagesPrice: € 23.00

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GENOA“Energy Collapse”How to survive a few morecenturies on this planet.Shows events andconferences on the energyemergency in an attempt tospread accessible informationon energy-related subjectsand the promoting of publicawareness about the need toadopt environment-friendlybehavioural patterns.When: from 10th to 25thMay 2008Info: www.teatrocargo.it

FLORENCEFuture Earth 2008A large exhibition-congresswith the aim of promoting“good practices of life-style,government and business” tocontribute to the safeguardingof environment and planet aswell as protecting the rights ofindividuals and peoples. When: from 23rd to 25thMay 2008Info: www.terrafutura.it

LECCE“Energy Festival – energyexplained”In the streets and squares ofLecce the general public willhave the opportunity to meetexperts, scientists andjournalists, for three days fullof energy. The festival isorganized by Aris (Agency forresearch, information andsociety) and Assoelettrica.When: from 16th to 18thMayInfo: e-mail: segreteria@festivaldellenergia.it

TURIN"Greenwashing –Environment: dangers,premises and perplexities"Greenwashing: a neologismwhich indicates howcompanies and politicianssalve their consciences byparticipating in publicity andcommunications in favour ofthe environment to hide theirown negative responsibility.An awkward subject but avery topical one, which will bedeveloped in many differentways by 25 artists under 40in an exhibition of theSandretto Re Rebaudengofoundation. The exhibition isorganized by Ilaria Bonacossaand Latitudes.When: until 18th May Info: Helen Weaver, tel. +44(0)7772 159219e-mail:helen.weaver@fondsrr.org

VERONA“Solarexpo &Greenbuilding”Ninth edition of theexhibition andinternational meeting onrenewable energy anddistributed generationUnder the patronage of theMinistry for the Environment.Among this year’s noveltiesthere is a special event.POLYGEN, dedicated to highefficiency distributedgeneration, which will be heldduring Solarexpo: a specificarea and a nationalconference at which morethan 300 professionalsparticipated in the pastedition. Besides the exhibitionthere will be a prestigiousconvention programmeincluding the inevitableconsideration of photovoltaics,an in-depth analysis of solarthermal power and another ongreen building. When: from 15th to 17th MayInfo: www.solarexpo.comtel. 0439 8498550439.847652

ROMEEAGE annualconference/SPE Europec This year, the 70th EAGEconference & exhibition has

‘Leveraging Technology’ as theprinciple subject underconsideration. At the moment,while the whole E&P(exploration and production)industry is struggling to renewits global reserves and improvethe yield of oil fields already inproduction, technology is seenmore than ever before to bethe only real key to success.When: from 9th to 12th Juneat the New Trades Fair Centre,Rome, v. Portuense 1455Info: www.spe.org owww.eage.org tel +39 06 5178582

Gas in Italy: what does thefuture hold? Safe (“Sostenibilità ambientalefonti energetiche” –“Environmental sustainability:energy sources”) is organisinga workshop on problemsrelating to gas. Speaking at theevent will be representatives ofindustry institutions andassociations, the scientificresearch world, and topcompany managers. When: 19 May 2008, Cameradei Deputati, Palazzo Marini -Sala delle Colonne, Via Poli 19– RomeInfo: e-mailsegreteria@safeonline.it - Tel.+39 06/53272239 - Fax +3906/53279644

LONDONInternational oil tradingWhen: from 16th to 19thJune 2008Info: tel: +44 207 779 8800; e-mail:customerservice@petroleum-economist.comwww.petroleumeconomist.com

SACRAMENTO2008 Sacramento World oilconference 2008Aspo USA announces its fourthannual dialogue with theexperts of the energy sector. Ahigh-level conference todiscuss the key issues, impactof and answers to a peak inworld oil production.Numerous experts andprofessors will be present togive their thoughts on thequestion. There will also be apre-conference day whereattendees will be able to mixand meet with speakers andsponsors.When: 21-23 September20081209 L Street, Sacramento,California, USA 95814Info: Tel: +1 916 443 1234Fax: +1 916 321 3099http://www.aspo-usa.org/aspousa4/index.cfm

ISTANBUL31st International IAEECongressHosted by the TurkishAssociation for EnergyEconomics (TRAEE), thiscongress will provide aplatform for objectivediscussion at a professionallevel for all those engaged inthe energy industry (such asresearchers, entrepreneurs andsuppliers). The eventrepresents an opportunity toexplore extremely topicalenergy related subjects, toconsider global energy policies,

understand which factors willinfluence the sector in futureyears and assess theuncertainties of the market. In 2008, the Kyoto Protocolenters into the first period ofits application. The Congresswill also discuss itsimplications.When: from 18th to 20thJune 2008Info: tel: +90 212 3597544e-mail: info@iaee08ist.org;http://www.iaee08ist.org

HOKKAIDO G8 Summit Japan will host the 2008 G8 atHokkaido Toyako.When: from 7th to 9th JulyInfo: Internet: http://www.do-summit.jp/en/about/

VIENNAENERGEX Congress &Exhibition Energy for humandevelopment and theprotection of the environmentParticipants will receive up-to-date information on all kindsof energy.When: from 6th to 10th July2008Info: Sophia Waldmuellertel. +43 1 402 77 55 621e-mail: energex2008@aims-international.comWebsite:www.energex2008.com

ALESSANDRIAEGYPT5th Congress andExhibition ofMediterranean countries When: from 20th to 22ndMay 2008Info: tel: +20 2 70 65 210;fax +20 2 70 65 359; e-mail:conference@moc2008.com;website: www.moc2006.com

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TASHKENT12th Congress andInternational Exhibition onthe Oil and Gas inUzbekistan (OGU)Over the last 10 years OGUhas grown significantly, tobecome one of the principleevents in the Uzbekistan andCIS oil and gas sectors. Now,OGU represents a veritablelaunching pad for foreigncompanies wishing to enterthe Uzbek market or invest ingas or oil in this country.When: from 13th to 15th May2008Info: Tel: +44 207 596 5233e-mail:oilgas@ite-exhibitions.com,ite-exhibitions.com

MADRID19th World Congress on Oil The growth in worldpopulation and globalizationhave led to a phenomenalincrease in energyconsumption. The demand foroil and gas continues toincrease. Past experience has

shown that the volatile natureof prices and economic cycleswhich alternate periods ofboom with periods ofrecession in demand areharmful both for industry andconsumers. The challengefacing companies, in achanging world, is to ensure acontinuous and reliable supply,which will meet society’s needfor sustainable developmentfrom both an ethical andenvironmental viewpoint. When: from 29th June to 3rdJuly 2008Info: tel: +44 207 596 5233; e-mail:oilgas@ite-exhibitions.comwebsite: ite-exhibitions.com

DUBAIEnergy Iraq 2008Focusing on the enormousincentives needed toencourage a favourableclimate for investment in theIraqi downstream. In the two-day congress the challenges tobe faced by the Iraqi oilindustry will be analysed.When: 19th May 2008Info: Tel: +44 207 978 000;fax: +44 207 9780099; e-mail:sshelton@thecwcgroup.com;website:www.thecwcgroup.com

Middle East Oil StrategyWhen: 26th May 2008Info: tel: +44 207 589 7804;fax: +44 207 589 7814;e-mail: babette@glopac.com;website: www.petro21.com.

5° MidEast UpstreamWhen: from 27th to 28thMay 2008Info: tel: +44 207 589 7804;fax: +44 207 589 7814;e-mail: babette@glopac.com;website: www.petro21.com.

ABUJA(Nigeria)1st International Congressand Exhibition on NigerianGasThe Nigerian gas sector isgoing through a period ofsustained growth andinvestment: in fact presidentUmaru Yar’Adua is determinedto place the country in astronger position on the gasmarket. This event offers anopportunity to interact directlywith those responsible for theongoing restructuring processin Nigeria as well as thecompanies in the sectoralready operating in thecountry. When: from 20th to 23rdMay 2008Info: tel. +44 207 596 5233;fax +44 207 596 5106; e-mail:oilgas@ite-exhibitions.com,website: ite-exhibitions.com

TUNISIBriefing of Maghrebcountries on oil and gas When: 16th June 2008Info: tel. +44 207 589 7804;fax +44 207 589 7814;e-mail: babette@glopac.com;website: www.petro21.com

6th meeting Maghreb –MediterraneanWhen: from 17th to 18thJune 2008Info: tel. +44 207 589 7804;fax: +44 207 589 7814;e-mail: babette@glopac.com;website: www.petro21.com

MOSCA6th Russian Congress onOil When: from 24th to 26thJune 2008Info: tel. +44 207 596 5233;fax +44 207 596 5106; e-

mail: oilgas@ite-exhibitions.com, website:ite-exhibitions.com.

MIOGE 2008MIOGE (Moscow internationaloil and gas exhibition) is thelargest Russian exhibition onoil and gas. Its first edition washeld in 1993.When: from 26th to 29thJune 2008Info: www.mioge.com

BAKU15th InternationalCongress and Exhibition onoil and gas of the CaspianOver 400 congressparticipants, 20 sponsors andover 50 media partners. Theseare some figures regarding theevent which will hostcommercial delegations fromthe United Kingdom, Norway,China, Finland, France,Germany, Italy, Turkey, Tassia,Kazakhstan, Turkmenistan andthe US. When: from 3rd to 6th June2008

Info: tel. +44 207 596 5233;fax +44 207 596 5106; e-mail:oilgas@ite-exhibitions.com,website: ite-exhibitions.com

PARIGISummit on Gas and Oil ofthe CIS (Confederation ofIndependent States)When: from 28th to 30thMay 2008Info: tel. +44 207 067 1800;e-mail:marketing@theenergyexchange.co.uk; website:www.theenergyexchange.co.uk

ORLANDO99th Annual Congress andTrade FairDistrict Energy/CHP 2008When: from 29th June to 2ndJuly 2008Info: Tanya Kozeltel. (410) 518-6676 e-mail: idea@districtenergy.orgWebsite:www.districtenergy.org

Solwest Fair of RenewableEnergy When: from 25th to 27th July2008Info: Jennifer Barkertel. 541-575-3633e-mail: info@solwest.orgWebsite: www.solwest.org

CHICAGOGASMART 2008Market for buyers and sellersof gasWhen: from 20th to 22ndMay 2008Info: tel. 800–427–5747, e-mail: info@gasmart.comhttp://gasmart.com/gasmart2008/

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