224 PETROLEUM TECHNOLOGY, ECONOMICS, AND POLITICS
belief that the price in the future will be higher than the price for
delivery straight away, there will be a flurry of market activity to
buy up short-term contracts. This will bid up prices, leading to a
new equilibrium at a much higher level and persuading producers
that the longer they leave the oil in the ground, the better the price
they will get (Fleming, 2000).
In addition, foreign investment in the oil sector could be necessary
to bring oil to the world market but many countries have restricted
foreign investment. Lack of investment could hasten a peak in oil
production because the proper infrastructure might not be available to find and produce oil when needed, and because technical
expertise may be lacking. The important role foreign investment
plays in oil production is illustrated in Kazakhstan where opening
the energy sector to foreign investment in the early 1990s led to
a doubling in oil production between 1998 and 2002. In addition,
we found that direct foreign investment in Venezuela was strongly
correlated with oil production in that country, and that when foreign investment declined between 2001 and 2004, oil production
also declined.
The lack of technical expertise can lead to less sophisticated drilling techniques that actually reduce the ability to recover oil in more
complex reservoirs. For example, according to industry officials,
some Russian wells have difficulties with high water cut (a high
ratio of water to oil), making oil difficult to get out of the ground
at certain price levels for crude oil. This water cut problem stems
from not using technically advanced methods when the wells were
initially drilled. The Venezuelan national oil company, PDVSA, lost
technical expertise when it fired thousands of employees following
a strike in 2002 and 2003. In contrast, other national oil companies,
such as Saudi Aramco, are widely perceived to possess considerable technical expertise.
A high proportion of approximately 85% of the world's proven
oil reserves are in countries with medium-to-high investment risk
or where foreign investment is prohibited. For example, over onethird of the world's proven oil reserves lie in only five countries:
China, Iran, Iraq, Nigeria, and Venezuela. All of these countries
have a high likelihood of seeing a worsening investment climate.
hree countries with large oil reserves (Saudi Arabia, Kuwait, and
Mexico) prohibit foreign investment in the oil sector, and most
major oil-producing countries have some type of restrictions on
foreign investment. Furthermore, according to the United States
belief that the price in the future will be higher than the price for
delivery straight away, there will be a flurry of market activity to
buy up short-term contracts. This will bid up prices, leading to a
new equilibrium at a much higher level and persuading producers
that the longer they leave the oil in the ground, the better the price
they will get (Fleming, 2000).
In addition, foreign investment in the oil sector could be necessary
to bring oil to the world market but many countries have restricted
foreign investment. Lack of investment could hasten a peak in oil
production because the proper infrastructure might not be available to find and produce oil when needed, and because technical
expertise may be lacking. The important role foreign investment
plays in oil production is illustrated in Kazakhstan where opening
the energy sector to foreign investment in the early 1990s led to
a doubling in oil production between 1998 and 2002. In addition,
we found that direct foreign investment in Venezuela was strongly
correlated with oil production in that country, and that when foreign investment declined between 2001 and 2004, oil production
also declined.
The lack of technical expertise can lead to less sophisticated drilling techniques that actually reduce the ability to recover oil in more
complex reservoirs. For example, according to industry officials,
some Russian wells have difficulties with high water cut (a high
ratio of water to oil), making oil difficult to get out of the ground
at certain price levels for crude oil. This water cut problem stems
from not using technically advanced methods when the wells were
initially drilled. The Venezuelan national oil company, PDVSA, lost
technical expertise when it fired thousands of employees following
a strike in 2002 and 2003. In contrast, other national oil companies,
such as Saudi Aramco, are widely perceived to possess considerable technical expertise.
A high proportion of approximately 85% of the world's proven
oil reserves are in countries with medium-to-high investment risk
or where foreign investment is prohibited. For example, over onethird of the world's proven oil reserves lie in only five countries:
China, Iran, Iraq, Nigeria, and Venezuela. All of these countries
have a high likelihood of seeing a worsening investment climate.
hree countries with large oil reserves (Saudi Arabia, Kuwait, and
Mexico) prohibit foreign investment in the oil sector, and most
major oil-producing countries have some type of restrictions on
foreign investment. Furthermore, according to the United States