0.15 Natural capital: energy  (Page 8/15)

The inefficacy and inequity of fossil fuel subsidies is clearly evident. Still, even by 2014, large subsidies on the domestic consumption of fossil fuels continue to be used in many nations.

Fuel subsidies in Egypt have resulted in prices of fuel that are less than the cheapest bottled water. As a result, subsidies amounted to $17 billion in 2011, or about 11% of GDP. Fuel subsidies in Nigeria were fully 20% of the Federal Budget in 2011. The government of Brazil compels the SOE PETROBRAS to cap fuel prices at levels well below their costs of production. When subsidies are reduced, by increases in fossil fuel prices, as in Brazil in 2014, the changes have tended to be minimal. In that year, Brazil increased diesel prices by 5% and gasoline by 4%.

However, in spite of past timidity in reducing subsidies, a welcome trend has been developing. Other countries that have used heavy subsidies on energy include Ghana and India (diesel fuel only). Both nations in 2014 were in the process of phasing out the subsidies. The Philippines, Malaysia, and Uganda also have sharply reduced fuel subsidies in recent years, as did Iran in 2014. The Ugandan and Indonesian programs are especially notable because they cushioned any adverse impact on income distribution by subsidies with cash payments to the poor, much like the conditional cash transfer programs used so successfully in Brazil and Mexico to promote human capital formation (see Chapter ___).

Nevertheless, worldwide, fossil fuel subsidies rose sharply from 2008 to 2012, reaching $400 billion in that year. Since then, owing partly to changes in Ghana, India, Uganda and Iran the cost of subsidies worldwide has declined slightly, amounting to about $375 billion in 2014, Source: “Price Squeeze”, The Economist , June 14, 2014. of which 83% was due to emerging nations.

Future sources of hydrocarbons for emerging nations

By 2025 with only one or two exceptions, the large state-owned oil companies in emerging nations will, in all likelihood, not find large new oil and gas reserves. State-owned firms in Russia, Mexico, Venezuela, Indonesia, and India lack the technology and often the capital to find and extract oil in shale formations or in deep onshore or offshore reservoirs. The possible exception could be Petrobas in Brazil. There, large promising new deep–water discoveries have been made. These are the famous pre-sal deposits, lying as deep as 10-12 thousand feet below the ocean floor (pre-sal means deposits hidden under very thick layers of salt). Until about 2005, oil exploration technology could not detect these deposits. This changed with advances in seismic methods of exploration. If all these deposits are ever tapped, the results will provide huge amounts of natural gas for Brazil.

In any case, furnish the best hope for finding and exploiting oil and gas deposits under the soils or seas of emerging nations. Two such technologies are presented here: horizontal drilling coupled with “fracking” and new techniques for reaching deepwater oil deposits.