Globalization, Energy Demand, and Resource Scarcity

Introduction: Globalization and the Energy Challenge

According to a May 2004 report from Deloitte Research, supplying enough energy on a reliable basis at prices that will not cripple global economic growth has become a challenge with consequences that are difficult to predict (Globalization pp). Although this will provide new opportunities for oil and gas companies, pipelines, generators, utilities, and others in the energy business, it also carries serious risks (Globalization pp). The demand for energy is growing not only in the developed economies of Europe, Japan, and North America, but in developing countries as well (Globalization pp). In fact, the fastest demand growth is occurring in China and other emerging markets; from one side of the globe to the other, societies are demanding more fuel (Globalization pp).

Twenty years ago, globalization was barely discussed, because at the time fewer than fifteen percent of the world's population participated in true global trade (Marber pp). Third World countries were mere pawns in the Cold War's global chess game, and the prospect of the Soviet Union or Communist China integrating economically with the West — or of regimes in Latin America or Asia abandoning central planning — seemed remote and improbable (Marber pp). The possibility of any of these countries making meaningful socioeconomic progress and reaching Western standards of living was considered completely unrealistic (Marber pp).

On average, people are living twice as long as they did a hundred years ago, and the world's aggregate material infrastructure and productive capabilities are hundreds, if not thousands, of times greater than they were a century ago (Marber pp). Much of this progress has occurred since the latter half of the twentieth century, with a powerful upsurge during the last twenty-five years (Marber pp). In the last two generations, there have been gains in virtually every meaningful aspect of life, and the trend will likely continue upward at least through the middle of the twenty-first century (Marber pp).

Economic Growth, Rising Living Standards, and Energy Consumption

The fact that people are living longer, fuller lives is most evident in Third World countries, where during the last fifty years life expectancy has increased by more than fifty percent, reaching levels the West enjoyed only two generations ago (Marber pp). The world today has more educated people with greater intellectual capacity than at any time in history, and this is particularly evident in much of Asia, where mass public education has enabled billions of people to increase their productivity and integrate as workers and consumers into the global economy (Marber pp). These same trends can be found in Eastern Europe and parts of Latin America as well, leading to historic highs in economic output and financial assets per capita (Marber pp).

During the twentieth century, economic output in the United States and other Western European countries often doubled in fewer than thirty years, and Japan's postwar economy doubled in fewer than sixteen years (Marber pp). Just in the last few decades, the economies of developing countries have grown so quickly that some — like South Korea during the 1960s and 1970s, and more recently China — have often doubled productive output in just seven to ten years (Marber pp). It must be remembered that poverty was the human living standard for most of recorded history, and until about two hundred years ago virtually everyone lived at a subsistence level (Marber pp).

In 1931, economist John Maynard Keynes wrote in Essays in Persuasion that from the earliest times of recorded history to the beginning of the eighteenth century, "there was no very great change in the standard of life of the average man living in civilized centers of the earth" (Marber pp). Although there were golden intervals, there was no "progressive violent change," due to two reasons: the absence of technical improvements and the failure of capital to accumulate (Marber pp). However, beginning in the early nineteenth century, the proportion of the world's population living in poverty declined from over eighty percent in 1820 to under fifteen percent in 2000, even as the world's population exploded from over one billion to more than six billion (Marber pp).

The root of modern prosperity can be found in the application of mass production technology, together with excess capital and a free market to exploit such technologies (Marber pp). The shifting U.S. labor pattern — from low-wage agricultural labor to manufacturing to higher-paid office and service employment — during the last two centuries resulted largely from trade, and similar shifts are now seen all over the globe (Marber pp). For example, during the 1950s and 1960s the U.S. imported electronics from Japan and exported cars; then in the 1970s the U.S. began importing small cars from Japan; and the last thirty-odd years have seen Japan lose its dominance in electronics and economy cars due to competition from China and South Korea, resulting in Japan shifting toward more expensive luxury cars and sport utility vehicles (Marber pp). Although jobs were lost, gained, and relocated in the U.S. and abroad during these market shifts, living standards in the United States, Japan, South Korea, and China have all improved dramatically over the same period (Marber pp).

According to the United Nations, two-thirds of the world's middle-class citizens in 1960 lived in the industrialized world — the United States, Canada, Western Europe, Japan, and Australia. By 1980, over sixty percent of the global middle class lived in developing countries, and by 2000, the number had reached eighty-three percent (Marber pp). It is predicted that India and China combined could easily produce middle classes of 400 to 800 million people over the next two generations, roughly the size of the current middle-class populations of the United States, Western Europe, and Japan combined (Marber pp).

There is no avoiding the fact that the success of globalization is underscored by dramatic increases in consumption, and with increased consumption comes environmental degradation (Marber pp). Current and projected damage to the environment can impede economic progress, and climatic changes attributed to greenhouse gas emissions and pressure on natural resources have become serious problems (Marber pp). Resource scarcity is an issue the world will have to confront as two to three billion more people consume like middle-class Americans over the next fifty years (Marber pp).

The globalization of the energy market is deepening and broadening through international trade as well as through "cross-investments, deregulation of domestic markets, and industrial restructuring that links the older energy industries to the new global political economy" (Harris pp). This transformation of energy industries and markets can be seen around the world and offers great potential in terms of economic efficiency, technology development, and consumer choice (Harris pp).

Geopolitical Competition for Energy Resources

According to a report published in March 2005 by the National Intelligence Council, growing demands for energy — especially by the rising powers — over the next fifteen years will have substantial impacts on geopolitical relations (US pp). The single most important factor affecting the demand for more energy will be global economic growth, particularly that of China and India (US pp). Although the trend is toward more efficient energy use, the report predicts that total energy consumed will likely rise by fifty percent over the next two decades, compared to a thirty-four percent expansion during the last twenty years of the twentieth century, with an increasing share provided by petroleum (US pp). Renewable energy sources such as hydrogen, solar, and wind energy will probably account for only about eight percent of the energy supply in 2020 (US pp).

Russia, China, and India all plan expansions of their nuclear power sectors; however, nuclear power will likely decline globally in absolute terms over the next decade (US pp). The International Energy Agency predicts that with "substantial investment in new capacity, overall energy supplies will be sufficient to meet growing global demand" (US pp). However, continued limited access by international oil companies to major fields may restrain this investment, and many of the areas — such as the Caspian Sea, Venezuela, West Africa, and the South China Sea — that are being counted on to provide increased output involve substantial political and economic risk (US pp). Moreover, traditional supplies in the Middle East are also increasingly unstable, making sharper, demand-driven competition for resources — accompanied by major disruption of oil supplies — among the key uncertainties (US pp).

China and India lack adequate domestic energy resources and will need to ensure continued access to outside suppliers. As a result, the need for energy will become a major factor in shaping the foreign and defense policies of these countries, including expanding naval power (US pp). According to experts, China will need to boost its energy consumption by roughly 150 percent and India will need to almost double its consumption by 2020 in order to maintain a steady rate of economic growth (US pp). Beijing's growing energy needs are likely to force China to increase its activist role in the world, especially in the Middle East, Africa, Latin America, and Eurasia (US pp). Yet, in trying to maximize and diversify its energy supplies, China fears being vulnerable to pressure from the United States, which Chinese officials view as having an aggressive energy policy that can be used against Beijing (US pp). For more than ten years, Chinese officials have stated that production from Chinese firms investing overseas is more secure than imports purchased on the international market (US pp). In order to secure more reliable access, Chinese firms are being directed to invest in projects in the Caspian region, Russia, the Middle East, and South America (US pp).

The National Intelligence Council's report also states that Europe's energy needs will probably not grow to the same extent as those of the developing world, partly because of Europe's expected lower economic growth and more efficient use of energy (US pp). Europe's increasing preference for natural gas, combined with depleting reserves in the North Sea, will provide an added boost to political efforts already under way to strengthen ties with Russia and North Africa, since gas requires a higher level of political commitment by both sides in designing and constructing the necessary infrastructure (US pp). According to a study by the European Commission, the European Union's share of energy from foreign sources is predicted to rise from about half in 2000 to two-thirds by 2020 (US pp). Due to environmental concerns and the phasing out of much of the EU's nuclear energy capacity, gas use will rapidly increase (US pp).

Deliveries from the Yamal-Europe pipeline and the Blue Stream pipeline will increase Russia's gas sales to the EU and Turkey by more than forty percent over 2000 levels in the first decade of the twenty-first century (US pp). As a result, Russia's share of total European demand will rise from twenty-seven percent in 2000 to thirty-one percent in 2010 (US pp). Moreover, as the largest energy supplier outside of OPEC, Russia will be well positioned to marshal its oil and gas reserves to support domestic and foreign policy objectives (US pp). Algeria, which has the world's eighth largest gas reserves, is also seeking to increase its exports to Europe by fifty percent by the end of the decade (US pp).

On June 7, 2005, Mikkal E. Herberg, Director of the National Bureau of Asian Research Committee, appeared before the Senate Foreign Relations Subcommittee on East Asian and Pacific Affairs (Herberg pp). According to Herberg, the issues stemming from China's growing energy needs are so important that the NBR organized a conference for September 2005 in Washington, D.C. entitled "China's Search for Energy Security and Implications for the U.S." (Herberg pp). Top energy and geopolitical experts discussed a wide range of issues, including the outlook for China's energy needs and imports, and its emerging and active energy security strategy (Herberg pp). Energy has become a central factor in shaping China's global geopolitical and diplomatic architecture in key oil- and gas-exporting countries and regions, such as the Persian Gulf, Central Asia, Russia, Africa, and more recently the Western Hemisphere (Herberg pp). At present, energy nationalism is on the rise in Asia with ominous implications for Asia's future, as energy and strategic relations become increasingly intertwined (Herberg pp).