June 23, 2003	Monday	Rabi-us-Sani 22,1424

This article is an attempt to look into the future of the world energy outlook over the next 30 years which depicts a picture in which the use of energy would continue to grow inexorably, fossil fuels will dominate the energy mix and developing countries would fast approach the OECD countries as the largest consumer of commercial energy.

Whilst the Earth resources have adequate reserves to meet rising demands for at least the next three decades, there are serious concerns about the security of energy supplies, investment in energy infrastructure and the threat of environmental damage caused by energy production.

Energy trade is expected to expand rapidly and in particular, the major oil and gas-consuming regions will see their imports grow substantially. This trade will increase mutual dependence among nations. But it will also intensify concerns about the world’s vulnerability to energy supply disruption, as production is increasingly concentrated in a small number of producing countries.

As such supply and price security has moved to the top of the energy policy agenda. The governments of oil and gas-importing countries will need to take a more proactive role in dealing with the energy security risks inherent in fossil fuel trade. They will need to pay more attention to maintaining the security of international sea lanes and pipelines, and they will look anew at walls of diversifying their fuels, as well as the geographic resources of those fuels.

Necessary expansion of production and supply capacity will call for massive investment at every link in the energy supply chain. Most investment will be needed in developing countries, and it is unlikely to materialize without a huge increase in capital inflow from industrialized countries.

The world energy use will increase steadily through to 2030. Global primary energy demand is projected to increase by 1.7 per cent per year from 2000-30 reaching an annual level of 15.3 billion tons of oil equivalent. This increase will be equal to two times of current demand.

Fossil fuels will remain in Middle East the primary sources of meeting more than 90 per cent of the increase in demand. Global oil demand will rise by about 1.7 per cent per year, from 75mb/d in 2000 to 120mb/d in 2030. Almost three quarters of the increase in demand will come from the transport sector. Oil will remain the fuel of choice in road, sea and air transportation. As a result, there will be a shift in all regions towards light and middle distillate products, such as gasoline and diesel away from heavier oil products, used mainly in industry. The shift will be more in developing countries, which have a lower proportion of transportation fuels in their products mix.

The demand for natural gas will rise more strongly than for any other fossil fuel. Primary gas consumption will double between now and 2030, and the share of gas in world energy demand will increase from 23 to 280 per cent.

The consumption of coal will also grow and China and India together will account for two-thirds of the increase in world coal demand over the projection period. In all regions, coal use will become increasingly concentrated in power generation, where it will remain the dominant fuel. Power sector coal demand will grow with the expected increase in gas prices. The deployment of advanced technologies will also increase coal’s attractiveness as a generating fuel in the long run.

The world’s energy resources are adequate to meet the projected growth in energy demand. Increased production in the Middle East and the former Soviet Anion, which has massive hydrocarbon resources, will meet much of the grown in world oil and gas demand. Most of the projected 60 per cent increase in global oil demand in the next three decades will be met by OPEC producers,particularly those in the Middle East. Output from mature regions such as North America and the North Sea will gradually decline. More oil will become available from Russia and the Caspian region and this will have major and far reaching implications for the diversity of supply sources for oil importing countries.

The production of natural gas resources of which are more widely dispersed than oil, will increase in every region other than Europe. International energy trade, almost entirely in fossil fuels will expand dramatically. Energy trade will be more than double between now and 2030. All the importing regions, including the three OECD regions will import more oil mostly from the Middle East. The increase will be more striking in Asia. The biggest growth market for natural gas imports are going to become much more dependant on imports. In absolute terms, Europe will see the largest increase in gas imports. Cross border pipelines in many regions will multiply, and trade in liquefied natural gas will surge.

I will briefly touch on the three OECD regions, i.e.. North America, Europe and the Pacific. China and Russia require a separate reference.

OECD North America: The future scenario shows an average annual growth rate of 1 per cent in primary energy demand in the United States and Canada. Demand will rise more slowly after 2010 due to gradual slowdown in economic growth and rising energy prices.

The United States and Canada will remain heavily dependent on oil. If the US and Canadian governments take no new action to rein in demand and boost production, net imports of oil will continue to rise reaching 5.5 mb/d or 57 per cent of the regions consumption in 2030. A large and growing share of these additional imports will come from the OPEC countries.

OECD Europe: Primary energy demand in the European Union will rise by 0.7 per cent a year to 2030, underpinned by GDP growth rate of l.90 per cent. Demand will rise slightly more rapidly in the rest of OECD Europe. In bath regions oil and gas will dominate the fuel mix. The European Union will need to import progressively more fossil fuels and the share of net imports in the European Union oil supply will climb from 73 per cent in 2000 to 92 per cent in 2030.

OECD Pacific: Primary energy demand in Japan, Australia and New Zealand will grow by 0.80 per cent p.a from 2000 to 2030. In this group of countries, the share of natural gas nuclear energy and renewable energy resources will grow at the expense of coal and oil. The trend results partly from government measures to promote less carbon-intensive fuels. Nonetheless their oil import dependence will rise sharply, reaching 92 per cent in 2030.

Korea’s primary energy demand will grow by 2.3 per cent per annum over the next 30 years. Oil will continue to dominate Korea’s fuel mix but the-share of gas and numbly energy will expand further.

China: The world’s second largest consumer of primal energy is a key player in world energy markets, accounting for more than 10 per cent of the world’s total energy demand. The Chinese economy is very dependent on coal of which it has large resources’ but the share of natural gas, oil and nuclear in the primary fuel mix will grow.

Imports of crude oil and refinery products are growing fast. By 2030, net oil imports are expected to reach almost 10 mbd- - more than 8 per cent of world oil demand. Imports will also have to meet 30 per cent of the country’s natural gas needs in 2030. These trends will make China a strategic buyer. However the investment in energy supply infrastructure needed to meet projected growth in China is enormous. More than $800 billion will be needed for power generating capacity.

Russia: Russia will play an increasingly important role in world oil and gas markets. The development of Russia’s vast resources will be crucial to the energy security of countries within the OECD. If Russia is to consolidate it’s role as the largest gas exporter to Europe, it will have to secure investment to develop new fields in less accessible areas arid to build more pipelines. Russia is also expected to start exporting gas to markets in the Far East, including China. Russia will continue to remain the third largest energy consumer in the world, after the United States and China.

Pakistan: I have talked about the supply and price security having reached the top of the agenda of the energy policy of consuming countries. North America which consumes 36 per cent of world’s oil supply is vulnerable to the Middle East as the global proven reserves of oil are more than 1 trillion barrels, out of which 65 per cent are located in the Middle East.

Pakistan’s energy security is highly vulnerable being dependent on imported oil, supply is extremely sensitive to market mechanism, cartel formation as well as political developments. The methods to price crude oil in international trade have changed on several occasions in the past five decades. Different regimes have been in place at different times. The change from a regime to another was not caused by the desire to improve the economies of price differentiation. Changes in pricing regime have solely reflected the interest of whosoever happened to be the dominant force at the relevant time.

Crude oil volatility has a direct import on developing economies like Pakistan. The current oil-pricing regime is imperfect since the Reference Crudes used do not satisfy either the volume criteria because of small producing streams or the market criteria because the relevant physical markets are illiquid and the future market riot sufficiently rooted in physical trade. Volatility will therefore remain a feature of the 2000’s unless the current pricing regime is abandoned by OPEC.

Pakistan consumed 45.5 million tons of oil equivalent (TOE) primary commercial energy during year 2000-01, comprising 40.6 per cent oil, 43.6 per cent gas, 10.1 per cent hydro, 4.6 per cent coal and 1.1 per cent nuclear. Nearly 83 per cent of the oil was imported at a cost of almost $3.0O billion i.e. about 30 per cent of our total export earnings. OPEC pressure will always remain in ensuring the price band upwards of $22, and it is anticipated that the price of oil by 2005 onwards will register an increase beyond $30 per barrel. If this happens, Pakistan’s import bill could rise to $4.50 billion - $5.07 billion per annum.

With this background it is vital for Pakistan to develop its own resources of oil and gas at the sane time bring coal into major focus through power generation on coal and gasification technology.

Gas comprises about 43 per cent in our energy mix - coal only 5 per cent. Over the next ten years, coal can easily play a major role in meeting our energy requirements. The new coal-based power technologies, the integrated gasification combined cycle and the integrated gasification fuel plants are the most promising in view of much higher thermal efficiencies and lower emissions of environmental pollutants.

Small gasification plants for our rural communities and large coal gasification plants will substantially enhance pipeline qualify gas into our reticulation system.

Pakistan’s Thar field is the 5th largest single coal field in the world. The current production of coal in Pakistan is only 4 million tons out of an established reserve of 2,013 billion metric tons. Obviously, therefore coal must come into immediate focus for our power generation, industrial and domestic use.

China and the United States produce 80 and 52 per cent of their electricity on coal-fired plants, Pakistan produces only 1.4 per cent of electricity through coal generation and 40 per cent on oil.

Demand for coal is projected to rise by 1.4 per cent per year. China and India together account for almost three quarters of the increase in coal demand in developing countries and two-thirds of the increase in world coal demand. Pakistan must bring coal into major focus to ensure its energy security.

(The writer is a former federal minister for petroleum and natural resources.)