The critical need for an energy summit in the Asia Pacific region

Irman G. Lanti, Jakarta

The skyrocketing oil prices in the world market has brought significant hardship to many economies in the world. The spot price of basket crude has shot up almost three times since 2003, from US$27.43 per barrel in July 2003 to a current level of more than $70 per barrel. Experts point to many reasons for such a price increase, ranging from political crises in oil producing countries to natural calamities. But one thing seems certain; the era of cheap oil is over.

Despite some analyses that oil has become the favorite commodity for speculators, and that the oil price nowadays does not reflect the actual state of global supply and demand, the indicators show that the world has become one big fossil fuel guzzler and oil is becoming increasingly difficult to come by.

This condition might persist for a significant period of time ahead. Old oil fields are maturing and new ones will probably take years to produce. In the meantime, oil consumption will continue to increase. The rise of the new economic giants in our region, China and India, plays a great part in causing the current price hike, and will probably be the single most important factor in future oil scarcity.

China and India, home to more than two billion people (almost one out of two human beings in this planet live in either of these two countries) have been growing at a breakneck speed. China has been growing at roughly 9 percent per year, while India at 6 percent. If this rate of growth continues for the next 10 to 20 years, both economies will double in size, and will pass other economic powerhouses in the world, such as Japan, the U.S. and the EU.

This sounds like a good news for both the Chinese and Indians, who for so long have lived under the scourge of poverty. But it is a nightmare for the world's energy provision. According to the World Energy Outlook 2004, a publication of the International Energy Agency, with its current growth rate, China's oil imports will rise more than five times 25 years from now. Currently China is importing around two million barrels per day. In 2030 it will import more than 11 million barrels per day, the rough equivalent of the daily oil production of Saudi Arabia. India is currently the world's sixth largest energy consumer. In 2030, it will consume three times more than the current rate of around two million barrels per day.

All this is made worse by the fact that the giant economies, such as the U.S., the EU, and Japan, also show no signs of reducing dependence on oil. Even smaller Asian economies, such as Indonesia, have seen a rise in energy consumption.

The recent years have seen heated competition in search for energy sources, particularly oil and gas, between the major economies. India and China have launched diplomatic offensives to quench the countries' thirst for oil. India's national petroleum agencies, ONGC (Oil and Natural Gas Corp.) and IOC (Indian Oil Corp.), and China's three national oil companies, Sinopec, China National Petroleum Corp. (CNPC)) and China National Offshore Oil Corp. (CNOOC) have been competing for concessions in various parts of the world where oil can be found. Chinese companies won the bid for exploration in Angola over their Indian rival last Oct. Sinopec has also acquired a 50 percent share in Iran's Yadavaran oil field, as well as acquiring a 4 percent share in a major consortium in Sudan. China's other energy deals involve Russia, Venezuela, Myanmar, Indonesia, and Kazakhstan. CNOOC also attempted a takeover of Unocal, but the bid was blocked by the U.S. Congress citing reasons of national security.

India has also been very active in finding new sources of energy. During a visit of Venezuela's president Hugo Chavez to New Delhi, the two countries signed six agreements, mostly on energy. IOC has also landed a deal with Iranian firm Petropars to develop a gas block in South Pars area, considered home to the world's largest natural gas reserve. Indian companies are also shadowing closely their Chinese rivals in bids over reserves in various countries all around the world.

This competition will only get fiercer in the future. Both countries will devote significant efforts utilizing all necessary means, including diplomacy to secure access to energy sources. History has taught us that wars were frequently fought over resources. One of the reasons for Japan's invasion of East and Southeast Asia during World War II was its search for energy sources.

Hitler's lebensraum could similarly be read as efforts to secure access to natural resources. Both China and India have meager energy resources, but they have a large population to feed. High economic growth is necessary just to ensure that jobs are available to the millions that are entering the job market every year. Therefore, while an energy war may not be imminent in the near future, the relentless quest for energy may well become an irritant in the relations among nations.

Southeast Asia is a resource rich region, and while oil has become much more difficult to come by these days, our region still has a lot of natural gas reserves untapped. The volatility of oil supply and demand in the world market will push natural gas as one of the most economical and logical alternatives. As demand for natural gas increases in the future, the search for its resources will also be intensified.

To anticipate this competitive trend and to ensure that it does not transform into a new source of conflict in our region in the future, there is a critical need to establish a collaborative platform, through which all energy-related issues can be deliberated.

ASEAN can take the initiative to call for an Energy Summit in the Asia Pacific. Or alternatively it can be discussed as an agenda item in one the mechanisms that we have in this region, such as ARF, ASEAN+3, ASEAN+10, APEC, and the idea of an East Asian Summit. Timing is critical. Now should be the right time to initiate such a discussion. We should not wait until events catch us off guard.

The writer is program director of The Indonesian Institute.