Energy outlook for Asia: The future is fraught

Richard Halloran, Straits Times 12 Feb 08;

A FRESH assessment of Asia's energy future asserts that the region, along with the United States, is being confronted with a 'daunting challenge' as oil consumption is rising much faster than production and the end of the world's oil supply is in sight.

'Today,' says a book published by the East-West Centre, the research and educational institute in Honolulu, 'the challenge of energy security is greater than ever. The days of cheap and plentiful oil are over. World oil production is likely to reach a peak some time in the next 10 to 15 years.' It will level off and decline after that.

The book's principal authors, researchers Fereidun Fesharaki and Kang Wu, warn: 'Coupled with emerging supply limitations, the Asia-Pacific region's increasing demand for oil raises fears of tensions among Asian nations and between Asia and the West.'

Mr Frederick W. Smith, the chief executive officer of FedEx, the world's largest express transport company with 700 airplanes and 80,000 trucks that drink prodigious litres of jet fuel and petrol, is more pointed. Writing in Newsweek, Mr Smith says: 'It shouldn't be forgotten that the proximate cause of World War II was the US oil embargo against Japan.'

He adds: 'The first Gulf War was caused totally by oil - it was Saddam Hussein's insistence that he owned certain oil fields that led to his invasion of Kuwait and (the US) ouster of his forces there.'

What he calls 'the subsequent presence' of the US in the Middle East, evidently meaning Iraq, has been driven by oil. Mr Smith says some analysts think 40 per cent of US military spending 'can be attributed to protecting the oil trade'.

Indeed, the competition for energy in Asia, even more than the confrontations between North and South Korea, China and Taiwan, and India and Pakistan, could be the cause of hostilities across the entire region, with unpredictable consequences.

The East-West Centre's book - Asia's Energy Future - points to the obvious cause of the increased consumption of oil, which is economic growth. 'Since 1900,' author Fesharaki says in an overview, 'well over one-half of the annual growth in global oil consumption has originated from Asia and the Pacific.'

In one year, 2004, 'China alone accounted for nearly one-third of the growth in oil consumption in the entire world'. India was not far behind, the book says, 'and this pattern is projected to continue'.

The demand is 'driven primarily by the growing number of motor vehicles'. Heavy industry is partly responsible in China, slightly less so in India, which emphasises information technology.

A complicating factor: Half of China's oil imports come from the Middle East while India is even more dependent on Middle Eastern sources. That is not likely to change, which gives Beijing and New Delhi reason to dip into the power politics of that already volatile region.

Both nations, the book says, are experiencing 'a renewed emphasis on hydropower and nuclear energy'. Hydropower in China accounted for 3 per cent of the nation's energy in 1980 and is expected to rise to 8 per cent by 2015.

The famed - and controversial - Three Gorges hydroelectric plant is scheduled to be completed next year at an enormous cost in funds, displaced people and submerged cultural treasures.

China appears to have lagged in nuclear energy, which produced only 1 per cent of the nation's needs in 1993. But Beijing plans to build enough nuclear plants to meet 4 per cent of demand by 2020.

In India, hydroelectric capacity provided 26 per cent of installed power capacity in 2005 but has been growing at a rate slower than demand. Nuclear power then accounted for only 3 per cent of electrical generation but that is expected to double this year.

To counter these trends in oil production and consumption, the East-West Centre researchers, who are experts in the energy field, assert: 'Business as usual is not an option.'

They recommend policies to reduce price volatility, such as building strategic oil reserves. They also advocate policies to bring a better balance between supply and demand, such as reducing bottlenecks in transport.

The authors call on political leaders in the US, the world's largest consumer of energy, and the Asia-Pacific region, the fastest growing consumer of energy, 'to make bold and profound changes'. They insist: 'Half-measures are not enough, and they may even make the situation worse.'

They suggest that 'high oil prices, although painful for consumers, may provide a needed incentive'.

But they close, with academic understatement, on a less than confident note: 'Heightened competition in international oil markets may work against cooperative efforts.'

The writer, formerly with The New York Times in Asia and Washington, writes about Asia from Honolulu.