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Prepared by the
Institute for the Analysis of Global Security

May 24, 2004
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China and US should set up a strategic dialogue on energy issues
Interview with Dr. Gal Luft of the Institute for the Analysis of Global Security, originally published by 21st Century Business Herald in Chinese.

A crude threat
The terrorist campaign against Iraq's pipelines demonstrates that pipeline attacks are no longer a tactic but part of a sustained, orchestrated effort that can deliver a significant strategic gain. They can also cause significant damage to the global oil market.
Next in line to emulate the insurgents in Iraq could well be Islamist terrorist groups operating in Central Asia, among them Chechen separatists and the Islamic Party of Liberation, a group that seeks to carry out a holy war against the West and is a suspect in the recent wave of deadly attacks in Uzbekistan.

Chilly response to U.S. plan to deploy forces in the Strait of Malacca
Whether something is profoundly wrong in the dialogue between the U.S. and the two Asian powers is an important question in itself, but the real issue is what is the best mechanism to secure the world's most important shipping corridor, through which one quarter of world trade and half of the world's oil and two thirds of liquefied natural gas move each day.

Highlights from the Department of Energy’s International Energy Outlook 2004-2025

Terror's Big Prize
Since September 11, pipelines, tankers, refineries and oil terminals have been attacked frequently. Except for a sharp increase in maritime insurance premiums in these regions these attacks had marginal strategic consequences. But in at least two cases oil terrorism could have rattled the world.

Libya: changing its spots?
Libyan crude oil is particularly attractive due to its very low sulphur content, which requires much less refining than higher sulphur oil. It is extremely high quality crude, whose characteristics are not easily found elsewhere. Despite its unique treasure, Libya's production capacity is relatively small, standing on 1.5 mbd of crude, or 2% of world supplies.
Since the 1988 Lockerbie bombing Libya had been under U.S. and UN sanctions which hindered its ability to generate enough investment to develop its oil sector. Libya's decision to embark on a rapprochement with the U.S came at unsurprisingly perfect timing, just as concessions for major U.S. oil companies were about to expire.

On the technology front

Fuel Cell power plant installed at NJ College
The fuel cell will provide 250 kilowatts of electric power as well as heat, to several buildings on the campus.

Biomass-to-Ethanol Progress
The enzyme costs of converting cellulosic biomass into sugars for fuel ethanol production have been reduced approximately twenty-fold with technology developed by the National Renewable Energy Laboratory (NREL) and Denmark based Novozymes, biotech-based leader in enzymes and microorganisms.

EU study: Methanol from biomass - competitive with gasoline
A study of a new patented Swedish technology concluded that the alchohol fuel methanol can be produced from biomass via black liquor gasification at a cost competitive with that of gasoline and diesel.

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Back Issues

North Sea oil is declining

Since the 1970s North Sea oil has not only been a major source of wealth for both the British and Norwegian economies but also a way for Europe to cut its dependence on Middle East oil. With severe wind gusts and waves 30 metres high, the North Sea has been one of the most challenging areas for oil exploration and recovery. Despite the challenges, the North Sea has been a key component of the increase in non-OPEC oil production over the last 20 years. Now many of the major fields in the North Sea are in decline and the North Sea is about to lose its prominent role as one of the world's leading oil domains.

While primary oil demand in European Union (EU) countries is projected to increase by 0.4% per year from now to 2030, North Sea output peaked in 1999 and has been on the decline ever since. The industry group the UK Offshore Operators Association (UKOOA) projected that North Sea output in 2004 would drop to 3.7 million barrels per day (mbd) from over four million last year. The British Daily Telegraph quoted UKOOA and the British Department of Trade and Industry warning that there was a "two to three year window of opportunity" to maximize the remaining reserves in the North Sea. This view is generally supported by the International Energy Outlook of the Energy Information Administration 2002 forecast. According to the report North Sea production is likely to peak in 2004 and then gradually decline with the maturing of some of its larger and older fields. Other studies show that the North Sea already peaked in 2000 at 6.4 mbd. At that point North Sea oil was 9% of global production and 22% of OPEC production.

Some efforts are being made to arrest the decline. The development of small marginal fields and introduction of sophisticated exploration and drilling techniques continues. But these efforts can, at best, extend the life of region by few more years. According to the World Energy Outlook 2002 of the International Energy Agency, EU oil production, most of it from the North Sea, is projected to fall to 2.3 mbd in 2010 and 1.1 mbd in 2030, forcing the EU to increase its dependency on imported oil, primarily from the Persian Gulf.

The swing from net exports to net imports is likely to harm those European economies producing oil and gas, particularly those of Britain, Norway and Denmark. It will generate a major additional annual burden on the balance of trade of Britain and Norway adding 65 to 85% to the level of these countries trade deficit. But even those European countries that do not produce oil are likely to suffer as a result of the decline. They will be forced to import more oil from remote areas incurring higher transport costs.