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. Analysis: Transition From Oil To Take Time

Coal is making a comeback in the United States, experts say. The country has one-third of the world's reserves and this potential matches the potential oil reserves of all the Middle East countries combined. The United States is largely betting on fuel produced by coal as the Clean Coal Power Initiative is developed; 150 future generation coal plants are to be built by 2020.
By Ben Kaminsky

Washington (UPI) Oct 28, 2005
A five- to 10-year transition period is required before coal and hydrogen can provide a solution to the world's oil shortage, and until then oil prices will continue to shape international relations, experts say.

"Oil transition will last 5-10 years as the velocity of economic and technological shifts speed up," said Joe McMonigle of The Abraham Group, an expert in energy and former chief of staff of the U.S. Department of Energy and vice chairman of the International Energy Agency Board of Governors.

Replacement of imported oil by coal and hydrogen is a security and foreign policy concern. It would avoid disruptions in oil supply and stabilize international relations.

The market penetration of hydrogen-powered cars will be effective in a decade. Brazil is already uses vehicles powered by fuel from sugarcane. South Africa flies planes that use fuel produced by coal.

Coal is making a comeback in the United States, experts say. The country has one-third of the world's reserves and this potential matches the potential oil reserves of all the Middle East countries combined.

The United States is largely betting on fuel produced by coal as the Clean Coal Power Initiative is developed; 150 future generation coal plants are to be built by 2020.

"Access to energy resources will dictate the international behavior of countries as it plays an increasing role in relations between the major powers," said Gal Luft, a geopolitical strategy expert who is executive director of the Washington-based Institute for the Analysis of Global Security.

As a geopolitical and economic issue, energy leads most of the big powers' foreign policies. As exporters, regimes use their leverage as a political means to achieve their strategic agenda on the international scene. As importers, political moves by the United States, Russia or China in Central Asia and in the Middle East can be understood through the prism of their quest for energy supplies.

In 1973 and 1981, two major oil crises wreaked havoc on the world economy as prices rose from $2.50 per barrel to $38.

"When oil price increases by 1 percent, China must add 4.6 billion of yuans ($570 million) on her energy bill" said Kang Shaobag, a professor at Beijing Petroleum University.

"Last September, China had only 15 days of import oil in hand," said Richard McCormack, a former Under Secretary of State for Economic Affairs, who is now a senior adviser at the Center for Strategic and International Studies, a Washington think tank.

The Energy Information Administration says that in order to stabilize the market, the world's excess capacity should remain at more than 5 million or 6 million barrels per day. Geopolitical tensions stem from the fact it is actually fluctuating from 90,000 in difficult periods to 1.4 million.

"Importers are preoccUPIed to secure their supply and exporters play on it. This can accelerate tensions." said Charles Doran, expert in international political economy and assessing political risk, at CSIS.

Several factors have caused the loss of crude oil production and disruptions in prices: Refinery bottlenecks, terrorism, lack of investment in oil infrastructure in the Middle East, and hurricanes in the Gulf of Mexico region. Demand from China and India are also spurring prices from $20 a barrel in 2001 to $61 today.

But experts say the world is still far from its third oil crisis.

The EIA says when adjusted to inflation, the price per barrel of oil in 1981 was more than $85. To have the same disruptive economic impact, today's price would have to remain at this level for three years.

Oil prices are expected to rise, as supply does not match demand.

China is expected to double its consumption to 14.2 millions barrels a day by 2025 while India's will likely surge from 1.4 million to 5 million barrels a day by 2020. U.S. demand is projected to grow by 37 percent in the next 20 years. In 2005, the world will consume 83.7 million barrels per day and will produce 84.6 million. World consumption rose by 2 percent last year.

To face that trend, state-owned companies adopted a "three-way strategy to secure the economy of their respective country," said Doran.

First, there is was fierce competition to buy international oil companies between countries such as China and India as seen by Beijing triumph over New Delhi to acquire PetroKazakhstan.

Second, governments are trying to accelerate exploration and productivity programs.

Third, they are signing long-term access contracts or geopolitical partnerships to lock up supply, especially on oil facilities. For instance, China signed a $70 billion energy contract with Iran.

This third strategy is not likely to ease in the short-term already existing tensions in international relations, said Doran.

In fact, petro-states achieve their own political agenda by playing on big powers' rivalries. Many exporter countries like Sudan, Uzbekistan, Venezuela or Iran take advantage of this situation on the international scene.

By the time coal and hydrogen can provide a clean and effective solution to the energy issue, oil shortages will drive the international countries' relationships. Big powers should understand it is in their own interests to ban zero-sum geopolitical games and create a global energy and international security strategy, according to experts.

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