OPPORTUNITIES IN THE DEVELOPMENT OF THE OIL & GAS
SECTOR IN SOUTH ASIAN REGION

Usman Aminuddin

World Energy Outlook

Before we address the issue of opportunities in the development of the oil & gas sector in the South Asian region, it is important to look at the world energy outlook over the next thirty years. If one looks into the future over the next thirty years, it depicts a future in which energy use continues to grow inexorably, fossil fuels continue to dominate the energy mix and developing countries fast approach consumption levels of OECD countries, becoming possibly as the largest consumers of commercial energy. Whilst the earth resources have adequate reserves to meet rising demands for at least the next three decades, but beyond that time frame there are serious concerns about the availability and security of energy supplies, the huge investments in energy infrastructure and the threat of environmental damage caused by energy production.

Energy trade is expected to expand rapidly in the coming years 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 producer 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 in maintaining the security of international sea-lanes and pipelines, and they will have to look anew at ways of diversifying their sources of 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. Greater investments will be needed in developing countries, and it is unlikely to materialise without a huge increase in capital inflow from industrialised countries.

World energy use will increase steadily through to 2030. Global primary energy demand is projected to increase by 1.7% per year from 2004-2030, reaching an annual level of 15.3 billion tons of oil equivalent. This increase will be equal to twice the amount of current demand.

Fossil fuels will remain the primary sources of energy, meeting more than 90% of the increase in demand. Global oil demand will rise by about 1.7% 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 28%.

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 at least for the next three decades. Increased production in the Middle East and the former Soviet Union, which has massive hydrocarbon resources, will meet much of the growth in the world oil and gas demand. OPEC producers, particularly those in the Middle East, will meet most of the projected 60% increase in global oil demand in the next three decades. 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. 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 is going to become much more dependent on imports. In absolute terms, Europe will see the largest increase in gas imports. Similarly large gas reserves in Middle East and former Soviet Union states will find potential markets. Cross border pipelines in many regions will multiply, and trade in natural gas, and liquefied natural gas will surge.