RIYADH, April 16: Balancing the crude equation is now becoming one of the key factors in the global oil markets today. Temperature and sensitivities of the issue of high prices are beginning to climb, all around.
As the G-7 ministers continue to deliberate on issues concerning the industrialised world, brushing aside diplomatic channels, Gordon Brown the senior most finance minister of the world’s industrial superpowers is now strongly urging the oil producing nations to bring down the crude price levels. IMF is now projecting that higher oil prices could stunt the global economy. Alan Greenspan says the energy markets are under the greatest strain in a generation.
All this is being said despite a common perception that there is nothing much the Opec could do in the current circumstances. People fear any disruption to supply could trigger a shortage - and that is what’s behind the high prices. And there are other factors too, contributing to the firmness in the markets.
On the other hand Opec is trying to ensure that the global markets remain balanced. The recent pronouncements by the Saudi oil minister Ali Al Naimi that the Kingdom could soon add another 200 billion barrels of oil, to its already proven reserves of 263 billion, has to be seen in this perspective. Saudi Arabia is already the kingpin on the supply side of the energy equation and if it manages to increase its reserve by another 200 billion barrels as is currently envisaged, the world could heave a sigh of relief.
Energy analysts strongly felt that the announcement by the Saudi oil minister was aimed at assuring the oil markets that there was no supply scare in the offing.
On account of a number of reasons, global energy requirement is galloping at an unprecedented rate. As per the World Energy Council (WEC), the task ahead is formidable. An estimated $16 trillion of new investments would be required all over the globe over the next 30-35 years, to meet an expected 55 per cent rise in the global energy demand. WEC estimates that at the current enhanced rate of rise in consumption, global demand could double over the first 35 years of this century and then rise to another three time pre-millennium levels by the year 2055. A scary projection, as some say, and has some justification.
The oil component of this explosion in energy consumption is also expected to increase by around 40 per cent to over 110 million barrels per day by 2025. For comparison the Opec is currently producing around 29 million barrels per day, thus the call on Opec production will need to increase to over 45 million barrels a day by 2025, to meet this projected surge in demand.
The world consumes some 68 billion barrels of oil equivalent each year as primary energy - nearly 200 million barrels per day. The hydrocarbon contribution to this supply today is almost 86 per cent.
In the developing world this demand is to grow at more than double the rate of developed nations. Asia is expected to double its energy demand by 2025 and is likely to increasingly dominate the global economy. Indeed, of particular interest is China where heavy industry and capital goods manufacturing sector are creating a huge demand for energy.
While economic growth in China and elsewhere in Asia continues to dominate the headlines, as one of the primary causes of the current bullish outlook in the oil markets, other specific factors are also worth noting. World population is projected to increase by one and a half billion to 8.3 billion between 2000 and 2025, with Africa and Asia making up the biggest components over that period.
Then continuing industrialization of the developing world is another driver of continued surge in the energy demand. Increasing urbanization is also spurring increased energy consumption - 80 per cent of the global population is likely to be urban by 2050.
This rise in consumption is a challenge to the world. Coordinated and combined efforts are required on all fronts. Conservation, finding alternative sources of energy and to top it all, innovative technology to help in exploring new finds and improvement in explorations techniques need to be addressed adequately over the coming years.
However, in the shorter run, market needs assurances concerning security of supplies. Hence it was not without a sense of purpose when the Saudi oil minister Ali Al-Naimi said, ‘these huge reserves enable the Kingdom to remain a major oil supplier for between 70 and 100 years, even if it raises its production capacity to 15 million barrels per day, which may well happen during the next 15 years.
