GEOG 4700-0: Energy & Natural Resources

Spring Semester 2021

Vusal Gahramanov

MIDTERM TAKE-HOME EXAM

This midterm take-home exam requires you to answer four questions in two hours.

Midterm exam start date: 2 pm, March 28, 2021

Midterm exam due: 4 pm, March 28, 2021

Late submissions will be penalized 10% for every 5 minutes.

In your answers, you can only refer to the information and examples from class discussions
and reading materials. To answer the midterm exam questions, students have to use the
information from class discussions and reading materials only. There is no word
limit/specific format for your answers.

1. Crude oil market is global, while natural gas market is regional. Would you agree
with this statement? Please substantiate your position. (25 points)

Taking into the consideration that the dynamics between the evolution and history of
the crude oil and gas market have been different and there is an observed significant
transformation in gas market, I believe that the statement is not true completely.
Different from the crude oil, in initial phase gas market was significantly more stable and
didn’t have strong international aspect in supply and demand transactions. In earlier
times, because the gas was used for mainly lighting purposes and due to its
characteristics (energy capacity) gas couldn’t compete with oil in international market,
however by time both markets have been moved from monopolistic to competitive
markets and both markets globalized. With the development of liquefied natural gas
(hereinafter LNG) the transformation volume and storage conditions of the gas have
been considerably improved which fostered the industry transformation with the
increasing international dimension. In spite of the fact that oil markets globalized
starting from mid 1900s, globalization of the gas market effectively started in the 2010s
years. As LNG helped many countries to enter the market and made many oil companies
became oil and gas companies it both accelerated the supply and demand volumes.
Thus, while historically crude oil was at the center of international transport and had
global market, now natural gas market is also growing global. Additionally, evolution of
these two markets are completely different and I think it also affects the future growth
of the markets. While there has always been an intense competition for the oil
resources, conflict in transportation routes and conditions and the market faced heavy
government interventions, the gas market has always been relatively stable and
cooperation among countries which export and import the resources have been
observed. Therefore, development of the natural gas market I think is far easier and
faster than the oil market. However, we should accept the reality that the differences in
pricing strategies also affect the development of gas market negatively in comparison
with the oil market. As there are already established regional institutions to define the
oil prices, such as OPEC, scope and speed of market growth is highly affected from it.
However, in gas market fixed pricing strategy is still missing and I think it is a challenge
for the development of the market. All in all, although I think currently both markets are
global, differences in the resource characteristics and purposes of use make these two
markets have different dynamics.

2. How would you evaluate the efficiency of National Oil Companies (NOCs) vs.
International Oil Companies (IOCs)? Please explain. (25 points)

The National oil companies are the oil companies, which have been loyal or working for
the country or the government (SOCAR). It can be successful if it increases the income
for the country and minimizes the foreign influence. It should also avoid the corruption
and maintaining the environmentally acceptable operations. The NOCs can also retain
some money gained from the income and then use that money for further investments
in oil field. The other examples besides SOCAR are Saudi Aramco and Statoil of Norway.
The International oil companies are on the other hand are interested in gaining their
own profit and maximize the greater returns to their shareholders. Because of that they
are less interested in maximizing benefits for their own country. Such companies are the
British Petroleum (BP), ExxonMobil (successor of Standard), Chevron and Shell. The
largest IOCs have the shareholders all over the world and because of that they are
effectively independent from their home country or the country of origin. However, we
should also take into consideration that they might be also controlled by the country of
origin, if the number of shareholders from some specific country is stronger. That
happened to BP who had 10% of its capital at the Kuwait Investment Office. That lead
the British government to demand the Kuwait to decrease their shareholding, so that
they will not lose control of the BP.
Can we see some correlation between the NOCs and IOCs? That might be possible. The
majority of NOCs don’t have enough resources to drill and make profit on their own
(Statoil and Saudi Aramco are two notable exceptions), but the others couldn’t and
because of that, the NOCs are often cooperating with the IOCs in order to explore and
exploit oil reserves on behalf of the NOCs. There are even mixed ownership of the NOCs.
The hybrid form of NOC we can see in Russia with the use of Lukoil and Rosneft.

3. How would you evaluate the effectiveness of the non-proliferation nuclear regime?
Please substantiate your position. (25 points)

The nuclear energy is considered as one of the cleanest energy sources of the world.
However, because of the fact that it was used as a weapon of mass destruction during
the attacks at Hiroshima and Nagasaki, and the subsequent Cold War deterrence, the
United Nations tried to limit the use of the nuclear armament around the world. That is
why the nuclear non-proliferation treaty was signed by the main nuclear powers at the
time. This is an international treaty whose main objective is to reduce the spread of the
nuclear weapons abroad. In addition, it is also interested in the promotion of the
cooperation in the peaceful nuclear energy use. At last, it is also interested in the
complete nuclear disarmament. Among the nuclear nations, Israel, India, Pakistan and
South Sudan have never been the signatories of the treaty, while North Korea withdrew
from the treaty in 2003. The countries, which produced the nuclear weapons before
1967 could retain their nuclear warheads, because the treaty doesn’t restrict their
status, however it will restrict the status of the states which will join later that year. That
is why the states like Russia and the United States are the members of the treaty and
still have nuclear armament, while for the states like Israel and Pakistan to join the
treaty, they had to destroy all of their nuclear weapons, and place their nuclear sites
under the international supervision. The only notable example of nuclear disarmament
was South Africa in 1991. Another notable treaty is the comprehensive test ban treaty
(CTBT), which prohibits any nuclear weapon test explosion anywhere in the world. It was
not ratified unfortunately by India, Pakistan, Israel, Iran, North Korea, Egypt and the
USA. This treaty is creating a special network of monitoring facilities and allows for on-
site inspections of suspicious nuclear tests.
Overall, if we are going to evaluate both of these treaties, then we can say that they are
effective in preventing the new actors to become the nuclear states (example with Iran),
however, they are not quite effective in dismantling of nuclear weapons of the states
who already has nuclear weapons. The states who has nuclear weapons after 1967,
could just leave the treaty (North Korea). There were only some notable examples, when
the states voluntarily gave up their nuclear program, and that happened to South Africa
(after the end of the apartheid regime), and also to three former Soviet States (Ukraine
gave up its nuclear program under the agreement of preserving its sovereignty (that
didn’t go so well after the Crimean annexation), Belarus and Kazakhstan). We should
also say that the treaty is stopping new states to develop the nuclear program, which we
might consider as a great success, but until the time, when all of the nuclear weapon
program from all the major powers will be dismantled, we cannot say that the treaty is
100% successful.

4. What would be your top three energy policy measures to curb global warming and
why? (25 points)

I think in order to effectively reduce the impact of fossil fuels on the environment and
curb global warming government can play a key role to foster the transformation. As a
first policy, government should invest in developing the sustainable infrastructure such
as construction of more energy efficient buildings and renewable energy adaptable
infrastructures. Second, governments should apply energy consumption quotas and
increase taxes for both companies and citizens who do not meet the quote of use. Since
it will effectively affect the users to reduce the consumption and companies to have
more sustainable production. Finally, governments can invest more on building
infrastructure to get more renewable energy and developing special programs for
transformation. Undoubtedly, in all these processes increasing awareness about the
problems and cultivating the skills to lead the transformation can be very supportive to
achieve results.