Picture of an oil field in Norway, one of the petro-states in the world today (picture courtesy of Bloomberg)
By Wan Ahmad Fayhsal
It is not an
exaggeration to claim that 20th century civilizations are
hydrocarbon-based. Maybe many are not aware of this fact of how we as a species,
are so dependent, or to be more precise 'addicted' towards this 'Black Gold'.
We eat, sleep and live by consuming and using petroleum.
In the age where
modern science and technology reign supreme as observed by Lewis Mumford, a renowned
historian of technology, mankind now lives in the age of Paleotechnic where
every nook and cranny of our lives have been mechanized. Modern food production
requires huge machineries in and rampant usage of pesticides in agribusiness. This
has made almost 90% of our food to have direct and indirect linkages to
petroleum.
This massive usage of
petroleum as basic chemical is more prevalent in our daily products. The usage
and application of petroleum are almost endless due to the fact of its cost-effectiveness
in fulfilling the demand of our consumer culture.
In spite of that fact,
we must know that such addiction is relatively new to mankind civilizational existence.
The rise of "Petrostate” – nation-state that depends so much on
hydrocarbon for its politico-economic growth – begins earnestly in the era of
Industrial Revolution that kick-started in Victorian England circa late 18th
century.
Post-colonial
countries like Arab Gulf states and even Malaysia, which are blessed with this
Black Gold, have been beholden to the same political and economic models of
their former colonial masters. The mantra of prosperity and progress preached
by these leaders of Petrostates are full of promises and hopes, but they also
come with what many economists called "resource curse" and
"myths" that are being coupled to it.
Recent unpopular move
made by Putrajaya to continue the quest of rationalizing subsidies has really
become a storm in a teacup. To understand the dejection and anger felt by
citizens of Petrostates the likes of Malaysia on this socio-economic issue, it
is very important for us to critically assess such myths to get better views of
the misconceptions on the ground.
Myth #1: Petroleum can easily be found as before
One of the main
characteristics of Petrostate is that its people will always think that this
natural resource called Petroleum is considered to be a source of ‘income’ that
will last till end of time. The truth is rather bleak. Petroleum is not and
cannot be regarded as a source of income to our nation, rather it is an 'asset'
which cannot be replaced once it is used.
Citizens of
Petrostates consume things more than their forefathers of pre-Industrial
Revolution due to the fact they regard such resources like petroleum to be
their inalienable birth-right to be consumed here and now - at the expense of
sustainable future for next generations. They are totally oblivious of the fact
that the era of cheap petroleum is over, or known as Peak Oil. The theory which
was first discussed by M. King Hubbert in 1956 has now becoming a reality.
Hubbert, who was a
geologist at the Royal Dutch Shell had crunched huge amount of data, which he
analyzed in thorough manner on the petroleum production profiles of oil and gas
companies. From the analyzed data, he made a conclusion that all matured
petroleum productions will encounter a 'bell curve' production graph in which
the production of oil fields will first reach plateau before heading for a
rapid decline.
At first Hubbert's
theory was not properly accepted by the industry players especially when those
oil companies made huge discoveries of new oil fields which were larger than
what they had discovered before especially the newly-discovered oil fields of
Middle East and Alaska in 1968. Such discoveries have made leaders of
Petrostates to be more lackadaisical in preserving those precious natural
resources because at the back of their mind oil production will last longer
down the road.
Association for Study
of Peak Oil and Gas (ASPO) based in Sweeden is one of the leading organizations
that continue to support and propagate Hubbert's legacy. All this while their
concern was simply dismissed by the oil and gas giants but lately the captain
of industries have started to pay serious attention towards Hubbert's theory.
More evidences
surfaced recently that lend credibility to the Peak Oil theory. In Twilight
in the Desert: The Coming Saudi Oil Shock and the World Economy, Matthew R.
Simmons, an expert in oil and gas discussed in great detail on the conundrum
besetting petroleum production in matured oilfields of Saudi Arabia which is
the largest petroleum producer in the world.
The chain reaction to
this problem is no other than the increase of production cost that rose sky
high even though technology in oil and gas has breaking many new grounds.
Former CEO and President of PETRONAS, Tan Sri Hassan Merican had aired the same
concern some time ago on this paradox. He lamented that though the revenue
stream of oil and gas companies have improved tremendously, exploration cost
also went up more than two hundred percent.
Some of these
challenges, and concerns raised by the authorities of the oil and gas industry
should ring an alarm to governments and the people at large that Petrostates
can no longer be basking under the same sun as the good old days of oil barons
like Rockerfeller and Andrew Mellon.
Myth #2: Petrostate views history as a linear
progression in human development
People of Petrostates perceive the world progress
in linearity. They view the present as culmination of linear progressions in
all areas of human life: education, economic, even religion. This idea has its
genesis in what the historians called Whig historiography: an idea that has its
genesis from Anglo-Saxon conception of history that assumes the whole world by
far and large will evolve towards the path of European Enlightenment where
scientific progress and liberal democracy will take root in all civilizations
including the non-European ones.
Consequence of subscribing to this idea or vision
of historiography will lead to homogenization and commodification of culture
which also begets similar consumer pattern. For example, GDP has become the
ultimate standard to measure material 'development' of one's country that many
easily equated to be the same as ‘wellbeing’. This parochial view of wellbeing sometimes
went at odd against traditional and religious values.
Having rich petroleum resources will not
guarantee a genuine independence from Western modernity that underpins the
ethos of more advanced Western-Petrostates. This can be seen on how
non-European Petrostates behave in managing their development which for them the
only way to capitalize and monetize such assets is by adopting the same
production of model of Western-Petrostates which means logically is also to
follow and adopt their consumer culture or what Thomas Veblen called
“conspicuous consumption”.
Myth #3: Government
and Petroleum companies are solely responsible for petroleum price hike.
Citizens of Petrostates have been acclimatized
with cheap gasoline at the pump. What most of them do not realize is that such
cheap price is very much artificial
and does not reflect the real value of petroleum. Since gasoline has become
artificially cheap due to government subsidies, citizens of Petrostates could
not bear the brunt of market force and harsh economic realities of today where
blanket subsidies that are normally given to all users of automobiles is no
longer sustainable to government's coffer.
Much of the money spent on subsidies is in actual
fact more strategic to be channeled to pressing developmental needs of the citizens
of Petrostates themselves especially with regard to public amenities. Unbridle
usage of petroleum for automobiles have created unfavorable condition in
preserving petroleum for future generation. Rampant consumerism and modern lifestyle
of today in truth are being fueled (pun intended) by the illusion of cheap
petroleum.
A closer examination into the politico-economic
fabric of Petrostates is no other than neo-liberalism which was made famous by President
Reagan and Prime Minister Thatcher. Spike in petroleum price in our times could
not be viewed simply from the elementary supply and demand rule. Commodity
future exchanges like the one in New York Mercantile Exchange (NYMEX) have
become the playground for unscrupulous traders who profited from people's
sufferings.
Greedy traders tend to look at the balance sheet above
all else. At NYMEX, regulators found out many cases where traders broke many
rules by manipulating transactions of petroleum; case in point JP Morgan’s
‘wash trades’ fiasco in 2013. There was a huge discrepancy between the real
quantity of physical production of petroleum and the one being traded at NYMEX.
This malpractice of futures trading in mercantile
exchange where petroleum crude is regarded to be one of the lucrative trading
commodities have created negative ripple effects where consumers worldwide -
including nations who are members of Petrostates. Perhaps due to this same
reason most developing countries have to fork out huge subsidies to cushion the
impact of that unethical trading although we all know very well such move will
not solve the real problem because the root cause is still untreated.
There is no piecemeal solution
People of Petrostates must accept the hidden cost
of having its own petroleum industry as a bitter pill to swallow. The earlier
we accept it, the easier we will able to address the problem better. The price
of crude oil will always be fluctuating erratically especially at the higher
level due to direct and indirect influence from contemporary challenges faced
by oil producers.
Geopolitical instability the likes of ISIS who
able to gain control of strategic oil fields in Middle East, territorial
dispute in South China Sea and the ever depleting and hard to recover oil wells
should put this whole mess into the real perspective: the Golden Age of
Petrostate is approaching its end.
The long-term solution must not be altered solely
at the level of production notably the players of oil and gas industry but most
importantly it must be equally embraced by those who consume it excessively in
the name of freedom, progress and development.
By right the newly member of Petrostates like
Malaysia who still holds unto significant religious and Asian traditions should
reflect carefully of our modernized lifestyle that hinged on cheap petroleum:
Is our lifestyle sustainable? Can we do justice to future generations by having
all of them now? Is the current economic and governance model of contemporary Petrostates
could really provide us the happiness and prosperity that we are looking for?
Can we not learn how non-Petrostates like Japan and Korea or even the more
welfare-based Petrostate like Norway in managing their resources prudently without
sacrificing the qualities of modern livelihood?
Malaysians should scan the globe and see that
there is a strong correlation between failed states and the curse of being too
much dependent on having cheap petroleum at hands. The curse must be avoided
for us to attain true blessings and build a more sustainable and humane future
or in Lewis Mumford’s vision, an ecotechnic civilization that predated Petrostates
era.
The author is a fellow at Putra Business School,
Malaysia
(this article was published by The Malaysian Reserve in two-parts series on the 15th and 16th of October 2014)
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