Freeman Spogli Institute for International Studies Program on Energy and Sustainable Development Stanford University


April 16, 2009 - In the News

PESD researchers, David Hults, Mark Thurber, and David Victor are quoted in this article about the NOC study currently underway.

For more information contact
David Hults, Research Fellow at PESD

Refined Thinking

Appeared in Interaction Quarterly, Stanford Report, April 15, 2009

'Governance, not geology, is what matters most' in determining how much oil we have.  David Victor

The United States is the world's largest consumer of energy, though China will soon overtake us. Eighty-five percent of the energy we use comes from oil, gas or coal, with oil the leader because of its importance to transportation. We produce 10 percent of the world's petroleum, and we consume 24 percent.

Oil is a matter of numbers: how much is left, how much we need, how much we pay, how much damage it incurs. Stanford researchers-scientists, economists, engineers and political scientists-are working on all these matters, on which so much of the world's economy and security rely.

National Oil Companies

Another objection to the peak oil debate comes from another corner of the university, law Professor David Victor's Program on Energy and Sustainable Development (PESD), a multi-year, interdisciplinary program housed at the Freeman Spogli Institute for International Studies.

Assistant Director for Research Mark Thurber, who has a doctorate in mechanical engineering, recently wrote an article titled "Why the Peak Oil Debate Misses the Point in an NOC-Dominated World," NOCs being national oil companies. According to this argument, the fact that 80 percent of the world's proven reserves are in the hands of state-run companies that often behave in an economically counterintuitive fashion has far more impact on available supplies than does the actual amount of petroleum in the Earth.

"Governance, not geology, is what matters most" in determining how much oil we have, Victor said.

The world's top NOCs are those of the Middle East, Venezuela, Africa, Russia and Latin America. In terms of ownership of oil reserves, they occupy the top 14 slots. ExxonMobil comes in at No. 15.

"The main limits on supply are above-ground factors," Thurber said. "Resources have peaked in some places, but there's a lot left. But for political reasons, because of the people with title to the oil, you can't get at it."

Venezuela is an obvious example. At one time, Petróleos de Venezuela (PDVSA) was relatively independent. But as the price of oil rose, President Hugo Chávez was tempted to meddle, Victor said. Revenues from the company pay for social programs while new exploration languishes. At the same time, non-NOCs cannot risk investing there, and so vast reserves go untapped.

Stanford law graduate David Hults (JD '08) is a PESD research fellow with a master's degree in international relations and work experience at the U.S. Department of State. In a paper on the Venezuelan national company, he argues that Chávez's overhaul of the company has weakened its performance while giving Chávez greater access to oil wealth.

"I became interested in energy, most of all in oil, as a way of understanding change within Venezuela," he said. "Since starting my PESD fellowship I've looked more broadly at oil-sector governance in the developing world. It drew my attention because oil fuels many developing economies, yet the governance systems for oil vary enormously."

One exception to the rule is Brazil, whose NOC, Petrobras, recently announced major underwater exploration efforts. Petrobras is "unbelievably efficient, it's run like a best-practices private firm," Victor said. "In Brazil, the investments are so huge and sophisticated that no one knows enough to meddle."

The paradox of plenty

But if Brazil is managing to benefit from its natural resources, that is not the case with other countries, which find that sitting atop great wealth can be a great misfortune. War, poverty, corruption and environmental degradation are the rule, not the exception. This notion is often referred to as the resource curse, though political science Professor Terry Karl prefers "paradox of plenty," the title of one of her books and the topic of her fall sophomore seminar, Oil, Regime Change and Conflict.

According to Karl, the Gildred Professor in Latin American Studies, "Petro-states become marked by especially skewed institutional capacities." Over-reliance on oil revenues to the detriment of other sectors; a lack of productive linkages throughout the economy; an emphasis on capital-intensive heavy industry for extraction; and overly quick development all mark the petro-states. Victor refers to NOCs as instant cash machines; likewise, Karl speaks of these countries' "addiction to oil rents. They are inherently unstable, with no structural defenses against boom-bust cycles and no civil society to ensure economic and cultural health."

Topics: Coal | Corruption | Energy | Governance | International Relations | Oil | Oil wealth management | Rule of law and corruption | Sustainable development | Brazil | China | Middle East & North Africa | Russia | South America | United States | Venezuela