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

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.