The Embargo at 40
Forty years ago, the global oil market faced shortages, price shocks, and unanswered questions about security of supply. The global oil landscape is drastically different today, and many of the changes grew out of the events that occurred 4 decades ago.
The most dramatic recent change is the growth in US production, revitalized by shale and tight oil output. The United States has drastically reduced its reliance on imported oil and is predicted to soon be the largest producer in the world, surpassing Saudi Arabia and Russia. US oil production has grown more than 50% in the past 5 years, and petroleum imports have fallen from a high of 60% in 2005 to 35% today, according to IHS CERA. That 35% figure is the same as in 1973, when the so-called Arab oil embargo jolted the US and other developed countries into realizing the significance of their dependence on oil supplies from the Middle East and the political and economic ramifications of that reliance.
In addition to oil, US natural gas production has risen by a third since 2005, and shale gas now accounts for more than 40% of total gas output. Long thought a reliable future customer of natural gas, the US is now retrofitting import terminals into gas export facilities.
The 1973 oil embargo—along with consumer governments’ reactive policies such as price controls—helped create gasoline shortages and political panic. It also spawned the encouragement of technological innovation and the opening of new frontiers for oil exploration and production. Developments in the North Sea, Alaska, deepwater US Gulf of Mexico and west Africa, and Canadian oil sands, as well as the growth of other non-OPEC production followed. Since 1973, OPEC production has remained relatively flat at 30 million BOPD, while non-OPEC production has doubled from 27 million BOPD. The crisis also led to increased consumption efficiency and research into alternative forms of energy. After the oil crisis, the leading consuming countries created the International Energy Agency to help guide the need to increase energy security and developed initiatives, such as the Strategic Petroleum Reserve to guard against shortages and potential price spikes.
While OPEC members and national oil companies (NOCs) have lost market share since that time, they still own the vast majority of the world’s reserves and are much less beholden to private international oil companies (IOCs). NOCs have become much more technically and financially savvy, calling the shots inside their countries and competing head to head outside their countries. NOCs no longer have to rely on large operators to develop their resources. They have the ability to manage projects and apply the latest technology, or can seek help from the large service companies, which are increasingly offering one-stop shop project expertise.