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Oil and Gas: Crises and Controversies 1961-2000 (Volume 2): Europe's Entanglement, Studies and Commentaries/Energy and Environment: Multiregulation in Europe

Posted on: Saturday, 23 July 2005, 03:01 CDT

Oil and Gas: Crises and Controversies 1961-2000 (Volume 2): Europe's Entanglement, Studies and Commentaries. By PETER R. ODELI. Brentwood: Multi-Science, 667 pp. 55.50 (pbk). ISBN O 906522 188

Energy and Environment: Multiregulation in Europe. Edited by PIOTR JASINSKI and W. PFAFFENBERGER London: Ashgate Studies in Environmental Policy and Practice, 2000, 179 pp. 37.50 (pbk). ISBN O 75461311 9

At a chance meeting, Peter Odell, Professor Emeritus of International Energy Studies at Erasmus University, now retired in Britain, promised to make my task easier by sending me a Canadian review of this book. Unfortunately, this help has not arrived and I had to rely solely on my own judgement in a field in which I am neither expert nor - until recently, and only in relation to 'global warming' policy responses - well read. The story of oil and gas in Europe combined with Odell's steadfast refusal to make any links with environmental politics and policy, invite a lengthy review.

Odell was closely involved in the policy-making process for oil and gas for several decades, initially at Shell where he gained his reputation for independent thought, and later when working in the Netherlands on the same subjects. This review is to remind geographers of a field of enquiry and analysis they may well be neglecting. Studying privatized and liberalized firms is not easy; matters were relatively easier for Odell for he was still able to study an energy sector closely linked to government and hence public policy based on physical, economic and political considerations only. Public policy could do without 'the environment', and the electricity sector at least was neither in private hands nor encouraged to be as competitive as possible. Today, green 'sustainability' is one of few regulatory themes left to officialdom and is increasingly used to justify a new form of interventionism in the public, or rather planetary, interest. How credible is this conversion? Hindsight allows some insights. The current effort to improve Europe's energy security with reference to 'sustainability' is not likely to succeed in the near future and both books serve as evidence. Only the Odell book is readable, however.

Geographers should be more aware than most of what many still forget: that the geographies of consumption, leisure and culture depend on cheap and reliable (uninterrupted) energy supply and that serious price fluctuations and growing dependence on imports and/or highly subsidized 'renewables', with often major local environmental impacts, will generate new geographies and policy issues. Energy (and transport) requires public policy intervention even when in the hands of competitive and largely privatized companies, remaining an obligation of the government and being increasingly subject to 'competence stealing' and geographical expansion by EU institutions. Today the regulation of energy prices, the taxation of fuels for the benefit of the public purse, ensuring supply security or even managing demand all take place increasingly through the back door of emission constraints, that is by using 'environmental' standards, taxes, new subsidies, 'voluntary' agreements, targets and permits to promote a transition to the low carbon economy. Old and new 'instruments' are used to intervene in so-called free markets for the sake, it is argued, of environmental precaution and regulationdriven technological innovation. These instruments are being negotiated between private actors and the government, urged on by non-governmental bodies often funded by the government. The latter group claims to represent the 'global' societal interest but de facto acts to provide the other two parties with immediate benefits (Kellow and Boehmer-Christiansen 2002). Thus, energy policy has become less rational, more politicized and underpinned by environmental ideology than in the decades when Odell advised governments and companies. The Ashgate book provides a poor example of this change.

Yet national energy security is again a desirable objective, as it was for Odell, as advisor to the UK Secretary of State for Energy 1977-9, who worried about the oversupply of oil and declining benefits for the UK. This volume helps the reader to understand how we got to where we are in Europe on energy issues (in a mess?) and why a brief period of (North Sea) oil and gas wealth ended rather rapidly. The period covered is largely that of the Cold War, the end of which has not of course changed the geographic distribution of natural resources, though access to the East has become easier but problematical. The geopolitics of the world, so important to Odell's analysis, has altered and the consequences for oil and gas are not yet clear. Debates about depletion continue and the promised wealth from the former Soviet 'North East' and the role it is to play in supplying Europe is still being negotiated; tackling 'global warming' clearly serves as a fall-back strategy in the case of failure. Should Europe and above all the UK worry about their future energy supplies given past experience, or has the past nothing to teach us? This was one question with which I approached the book, and was well rewarded.

The initial help given by the author in a rather brief introduction written in May 2002 proved important, for as he points out there has been no revision of his former views and opinions. The reader can benefit from hindsight. Odell again appears to be an optimist, for to him the end of the Cold War, in 2002, appeared to 'have led to level of energy security which would have been impossible to contemplate in the dark days of the Cold War and of dependence on oil imported from OPEC member countries, especially the Middle East' (p. xviii).

His book is divided neatly into four sections. The first section is entitled 'The oil and gas take-over of the European energy economy'. This process was completed by the mid-1970s when it became clear that nuclear power would not become as serious a rival as once feared, and also that the expected demand growth for fossil fuels had been much exaggerated. The second section, The exploitation of Europe's indigenous hydrocarbons' concludes with an assessment in 2001 of Dutch natural gas production when signs of depletion were beginning to show, though remaining reserves were judged as large as they were at end of 1995. The growing involvement in policy (now based on competition) and regulation by the EU institutions is documented. Odell concludes that 'the continuing magnificent low- cost supply potential of the Groning field' may not be threatened by liberalization, as exports to the wider European market should no longer be restricted as they were in the 1980s. Third-party access to the entire gas supply system still needs to be decided, with control over storage facilities a major factor. He talks only about the potential benefits of liberalization, yet worries whether these will become available to the small and medium-sized Dutch consumers who in the past were told that there was no supply scarcity and that Dutch gas could freely be sold to international customers. Cheap indigenous gas had been promised to Dutch voters far into this century.

Even in the late 1960s, gas, while available in a highly favourable way geographically, was still not expected to make a major contribution to Western Europe's energy supply, though export from the Netherlands was planned for the future. This was not encouraged, however, by the subsequent general EEC prohibition of its use in power stations. So the Dutch government implemented a slow rate of depletion policy and the Germans continued to protect their coal. Odell predicted correctly that this protection would eventually fail as more gas became available from under the North Sea and was brought ashore by pipelines. In the UK, Odell encouraged competition against foreign oil and gas products by the Gas Council, which had been set up as the sole purchaser of gas with an incentive to sell to the CEGB. The early stage of a 'dash to gas', as yet unsupported by the acid rain scare, petered out, however, but could have started as early as 1971 had the pressures for the extended protection of coal been overcome earlier. Odell knew that gas was a far more serious competitor to coal than nuclear power, but he surprisingly ignores how environmentalism came to aid the transition to gas, though he does recognize the high social costs arising from the decline of coal, especially in South Yorkshire and the East Midlands. The substitution of gas for oil by regulation was a possibility that he discussed at the time, but this did not at the time appeal to policymakers, least of all the new Conservative government. Should British gas be sold to the Continent? Odell recommended a pipeline to North Germany where it would have had a chance to compete successfully with Dutch gas, while reducing the threat to coal at home. This did not happen quickly, but the UK still exports gas to the continent, although apparently expecting depletion at home in a few years.

By 1972, the Groningen gas field had \become Western Europe's second largest source of indigenous energy (the first being Ruhr coal), with a much smaller labour force and the potential for reducing Europe's unwanted dependence on imported oil. Only in the Netherlands was gas being substituted for other fuels wherever possible, something which the first oil crisis' - or rather the rapid rise in oil prices on political grounds - would encourage. By 1975, the Dutch were already discussing the adequacy of their natural gas resources and significantly underestimating these supplies. This was based, according to Odell, on the motive of price maintenance. As this motive disappeared, a fundamental reappraisal became possible from which gas emerged as the primary potential European energy source.

In the winter of 1971/2, only the UK suffered from high oil prices (with the oil companies enjoying 'their profit bonanza' (p. 339)), in large part because oil and gas prices had remained closely linked. Strikes were looming and Odell correctly foresaw Western Europe's energy future as the outcome of the coal industry's and its regulators' response to the gas challenge. The human factor rising labour costs - alone may have condemned the defence of coal to failure, but in the 1980s defeat came cloaked in the green mantle of environmentalism, something Odell did not anticipate. Acid rain hysteria spread across Europe, fanned by Norway and Germany for rather different reasons. At least until 1980, while estimates of indigenous supplies of coal showed a gently downward trend, those of gas and oil rose steeply, and indigenous energy supplies remain significantly higher than imports.

Odell argued against a pessimistic future for European gas and chided the UK Labour government for insisting that the development of a multiuser pipeline system in the North Sea should remain partly in government hands, thus leading to insecurity about returns on heavy investments. Perhaps he did not stress adequately that the enthusiasm of oil companies for investing in the energy resources of the North Sea, and especially gas exploration, would to a significant degree depend on the world price of crude oil, and that this would be anything but stable. And as far as oil was concerned, Odell wanted to see less reliance on imports, but why this should lead to a 'much healthier position for Europe in its relationship vis-a-vis to the oil producing world' (p. 345) is not clear to me. Europe has rarely cared about the demand security of suppliers, but remains clearly in search of energy 'autarky', perhaps not a wise objective in a globalizing world whose overall prosperity is to be based on trade.

In 1975 the UK government refused British gas to be sold to mainland Europe, and Odell foresaw in 1977 that the potential for natural gas production from UK wells would remain restrained 'largely for institutional, rather than sound economic or strategic reasons' (p. 365). Instead, supplies from Norway burst upon the scene, sold almost reluctantly at first by Norway, which adopted a production quota that was soon relaxed. Odell argued, 'in the context of a western Europe whose political and economic future is dependent on its success in reducing dependence on oil from the Middle East' (p. 367). This aspiration is now supported by the 'global warming' threat as well. By 1985, Odell could still comment on constraints placed on gas and oil exploitation in the North Sea by government, with output little more than 50% of what even the OECD had anticipated.

Unmentioned by Odell, a new incentive to replace coal had emerged. In 1986-7, the IPCC was being set up, the clean-up of acid rain was approaching completion, at least in Germany, and a 'major expansion' of gas had indeed begun. In Chapter 4 of this section, the gas industry's history of regulation and control is outlined and is directed, in part, against gas imports from the USSR and Algeria which had doubled since 1980, although there is not a word of environmental pressures. Perhaps this silence is a reflection of what I have long suspected, that even acid rain was a cover of other more basic commercial and political motives. Odell reports that tension in Europe between producers and importers became 'increasingly acrimonious', and in such a situation green ethics would have aided the importers in their attempts to replace imports. Pricing policies had to change and gas was eventually admitted into the market for power stations. The deregulation of gas was under way as Britain, Norway and the Netherlands increased their reserve estimates and most EEC countries started exploring for gas inside their borders. Odell was hopeful that exploration would bring success, noting, however, that the 'indigenous natural gas supply industry has to fight off increasingly virulent competition from imports' (p. 381).

So the penetration of gas into the energy markets in EEC proceeded, but slowly, considerably more so than in USA; high transport costs by pipeline or tankers remained a constraint, especially when gas was competing with oil products. Yet the expected continuing relative decline in the role of oil in Europe was predicted (p. 385), as was the arrival of imported gas in competition with coal. The scene was now set for fundamental changes, one of which would be the full acceptance of gas into the power-generating sector. As Odell predicted, 'a competitive, expanding and declining real price gas market in Western Europe' had come about (p. 386) and the fear that resources were inadequate was shown to have been misplaced: future gas would not be more valuable than gas used today. The view that gas was a 'premium fuel' was rejected. The sole remaining argument for the expansion of nuclear power was also severely weakened: after Chernobyl in 1986, nuclear power in Western Europe was probably at its lowest ebb. It too would soon seek rescue with the aid of environmentalism.

The fourth section, 'Politics, policies and structures', generalizes the whole period from an institutional perspective. The author takes us back to 1912, when the UK government decided to invest in the Anglo-Persian oil company then exploring in Russia! For the next 50 years or so, government intervention in the oil industry proved unnecessary. The huge oil potential of the Middle East was revealed in the late 1930s. After the second World War, the LJS took over as dominant power in the Middle East and the oil security of Europe remained assured thanks to this not entirely applauded US presence. Writing before 2003, the invasion of Iraq was not foreseen by Odell, perhaps giving some support to the view that the most recent Anglo-American adventure in the Middle East was not primarily based on the politics of oil. The military presence of both the US and the UK (against French and German wishes) in Iraq and the debate whether intervention there relates mainly to oil, the wish to create a new geo-political regime directed against lslamist terrorism, or the wish to destroy the alleged presence of WMDs continues.

Embedded in this large section are many other points of interest. I would like to select only a few: the changing dependence on oil in Europe and European oil dependence. Apart from the slow growth in demand for 'gasoline' for cars, the energy economies of Europe remained dedicated to coal until after the second World War, making any interruption of oil supplies unimportant until the early 1950s. oil dependence only began in the late 1960s, though not equally throughout Europe, and the protection of coal gradually declined, but by the late 1960s the price differential between oil and coal had increased enough to spell the end of coal in some sectors at least, and with it came the growing dependence on imported oil. oil companies became a part of national strategy as crises in the Middle East made oil polities' vitally important. US companies then, as today, were the main international actor in the oil business. The main concern to Europeans, however, was their reliance on politically unstable source countries, with the USA becoming a major importer itself after 1950. By the late 1950s, Europe and the USA were depending on Arab oil, and did not like this dependence, by now a well known theme.

In 1951 Iran nationalized its oil, initiating a shift of oil refinery capacity to Europe (surely shortsighted) and making the import of crude oil the main trading activity between Europe and the Arab world and, I would guess, thereby adding to the dissatisfaction in the Arab world and the eventual rise of Bin-Laden. Two Middle East crises related to Israel, 1995/7 and 1967, further affected the politics of oil, with Europe's supply saved only by a half-hearted boycott by the Arab oil producers. (In 1957 the USA had saved Western Europe.) In 1970, Europe's 'dependence on Arab oil remained as high as ever' (p. 483), but the Arab world was changing. Instead of wanting to use oil as a weapon, they began using it as a means for achieving economic growth, which in turn spelt the end of cheap oil for Europe and based supply security on gentlemen's agreements. Imported oil became more expensive because of taxes imposed by the producers who had 'newly found collective strength successfully to secure control over the supply and price of oil'. Europe feared their refusal to sell. 'The outlook is bleak' wrote Odell in 1972, but relieved by the already described gas and later oil discoveries in the North Sea and the Netherlands.

The book on energy and environment, while it deals with the post Odell era and provides some insights into the current energy scene and especially the role of environmental regulation, is no match for the Odell book. Not only is the book extremely badly edited, with some chapters written in very poor, uncorrected English, it also lacks coherent themes and analysis. It is, in my opinion, a product of the current pressure to publish at any cost as che\aply and quickly as possible, and to include as many eastern European countries as possible. Much that is presented is poor and rather dull, with only the contributions by McGowan (on reconciling EU energy and environment policy, and so far producing 'a limbo' in which turf wars continue) and Ross, arguing that more could have been done for renewables in Wales in spite of some progress - 'if one accepts that there is a case for government support - on positive externality grounds' (p. 96), worth reading by the general reader. Schulz begins with the claim that 'Also (sic) it is now better known that the biosphere reacts much more to the disregard of ecological principles than was believed before', draws attention to the role of anaerobic processes and the use of rape for fuel oil, and concludes that 'power production from renewable energy will only have a perspective if its gets priority or a financial bonus': the 'legal fixation of electricity price' and 'quota for power from renewable energy' are suggested. In Germany, legal reform was still in progress at the time of writing, which appears to have been about 1998. I rest my case. Why did Ashgate publish?

Energy policy, to the extent that we still have it, will continue to cause much agony to the UK government and the EU, requiring 'hard choices' and generous treasuries, especially if popular opposition to nuclear power continues and Europe has to learn to accept its fossil fuel 'depleted' status, something the UK will face for the first time in its history for fuels required for both transport and electricity generation. While companies invest private fortunes in Russia and worse places, officialdom is increasingly worried about energy supply security, something it is now trying to 'tackle' with emission standards and carbon dioxide caps and trading. Environmental threats are needed to manage the new, still emerging energy regimes created by (foolish) privatizations and de- regulation. All this is post Odell, but he tells the story of how and why we got to where we are.

As late as 1990, Odell wrote:

Europe's energy sector policy makers, in spite of all evidence to the contrary, remain generally besotted with the concept of supply scarcity and thus believe it to be more important to continue working and planning mainly in for ways in which to protect the EC against future oil supply crises. This is perhaps a clear example of the way in which policy-makers show that they are rather like the proverbial generals who concentrate their efforts on fighting the last war (p. 267).

This war is still taking place, now under the banner of the Kyoto Protocol. It promises to be very expensive with very little, if any, effect on the 'global' climate.

Reference

Kellow A and Boehmer-Christiansen S A 2002 International environmental agreements: Interests and the failure of the Kyoto Protocol Elgar, London

SONIA BOEHMER-CHRISTIANSEN, Hull University

Copyright Royal Geographical Society Jun 2005

Source: Geographical Journal, The

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