Oil scarcity paints a bleak picture for Asia

PUBLISHED : Wednesday, 13 February, 2008, 12:00am
UPDATED : Wednesday, 13 February, 2008, 12:00am

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

According to Asia's Energy Future, published by the East-West Centre, a US-government-funded research and educational institute in Honolulu: 'Today, 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 principal authors, 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.'

Frederick Smith, chief executive of FedEx, the world's largest express-transport company with 700 aircraft and 80,000 trucks, is more pointed. He wrote in Newsweek: 'It shouldn't be forgotten that the proximate cause of World War II was the US oil embargo against Japan ... The first gulf war was caused totally by oil - it was Saddam Hussein's insistence that he owned certain oilfields that led to his invasion of Kuwait and our 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. He says some analysts think 40 per cent of US military spending goes to protecting the oil trade.

Competition for energy in Asia, even more than the confrontations between North and South Korea, mainland China and Taiwan, and India and Pakistan could be the cause of hostilities across the region.

Asia's Energy Future points to the obvious cause of increased oil consumption: economic growth. Since 1900, more than half of the annual growth in global oil consumption has originated in the Asia-Pacific region. In 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'.

Half of China's oil imports come from the Middle East, while India is even more dependent on these 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 hydro- power 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 behind in nuclear energy, producing only 1 per cent of the nation's needs in 1993. It plans to raise that to 4 per cent by 2020. In India, hydroelectric capacity provided 26 per cent of installed power capacity in 2005 but has not kept up with demand. Nuclear power accounted for only 3 per cent but is expected to double this year.

To counter these trends in oil production and consumption, the East-West Centre researchers say that 'business as usual is not an option'. They recommend policies that reduce price volatility, such as building strategic oil reserves; and that 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 'to make bold and profound changes'. They insist: 'half measures are not enough, and they may even make the situation worse.'

Richard Halloran is a former New York Times foreign correspondent in Asia and military correspondent in Washington