Asia-Gulf Economic Relations in the 21st Century: The Local to Global Transformation
377
Asia-Gulf Economic Relations in the 21st Century: The Local to Global Transformation
377Hardcover
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Product Details
| ISBN-13: | 9783940924100 |
|---|---|
| Publisher: | Gerlach Press |
| Publication date: | 04/30/2013 |
| Pages: | 377 |
| Product dimensions: | 6.50(w) x 9.60(h) x 0.80(d) |
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Asia-Gulf Economic Relations in the 21st Century: The Local to Global Transformation
By Tim Niblock, Monica Malik
Gerlach Press
Copyright © 2013 Gulf Research Center CambridgeAll rights reserved.
ISBN: 978-3-940924-10-0
CHAPTER 1
Gulf-Asia Economic Relations, Pan-Gulf and Pan-Asia Perspectives
Tim Niblock
Introduction
This chapter is intended to give an overall perspective of the economic relations between Gulf and Asian countries. The intention is to provide statistics and analysis which enable three different dimensions of comparison. These are: the relative importance of Gulf-Asian economic relations as part of the overall global economic relations of Gulf states; the share/significance of each Gulf state in the Gulf-Asian economic relationship; and the share/significance of each of the major Asian countries in the Gulf-Asian relationship. These various elements can, in turn, be grasped through three different sets of measures: oil and gas dependence (the extent to which any Asian country is dependent on the Gulf for its supply of hydrocarbons, and the extent to which any Gulf state is dependent on Asian demand for hydrocarbons); the flow of trade in both directions; and the nature and extent of investments and contracting undertaken by Asian companies in the Gulf, and by Gulf countries in Asia. The perspective needs to take account of trends and not just current figures, as these will enable an assessment of how significant the relationships may be in the long-run.
2. The Hydrocarbon Dimension: Gulf States' Production and Global Share
The dependence of most Asian countries (as, indeed, most Western countries) on imported oil and gas to satisfy their energy needs has, of course, been critical to the economic relationships which have developed. It is, therefore, important to begin by situating Gulf oil production within the wider setting of overall global energy production.
Global oil production in 2010 stood at 87.4 million barrels a day (henceforth b/d). This constituted an increase of 3.1% over the previous year, and came after two years of depression or recession in the Western and some other economies. The annual production total was the highest recorded. The global oil trade had expanded by 2.2% in 2009. The most substantial export growth was from the Former Soviet Union (7.2%), followed by the Middle East (2.6%). The growth in oil production and consumption was part of a wider trend towards higher energy production and consumption. In fact, oil production was growing less fast than the overall average in primary energy consumption. The latter grew by 5.6% between 2009 and 2010 – the strongest such growth since 1973. The fastest rise in the consumption of primary energy came from biofuels (13.8%), coal (7.6%) and natural gas (7.4%). Oil, however, makes up 33.6% of all energy consumption in the world, with coal coming second at 29.6%, and natural gas at 23.8%.
The Gulf's proven oil reserves constituted 54.0% of the global total at the end of 2010. The proportion of the global total accounted for by the Gulf states has declined over the past 20 years, as a result of new discoveries elsewhere. In 1990, the percentage was generally put at about 60%. Nonetheless, the Gulf share remains very substantial, and may increase in the future when new estimates of the extent of Iraqi oil reserves are made and confirmed. What is critical, moreover, is not just the size of proven reserves but also the potential to retain or increase levels of production and oil export in the future. Gulf oil production in 2010 accounted for 26.1% of global oil production and 28.3% of oil exports – substantially less than the share of proven oil reserves. Setting the 26.1% production share against the 54% share of global reserves, it follows that the rate of depletion of Gulf oil reserves is less than exists elsewhere, leaving more available for future production and export. Moreover, what is also important is the proportion of a country's or region's oil production which is available for export, rather than being absorbed by home consumption. In the case of the Gulf that proportion currently stands at about 70% (although home consumption is growing substantially), which is a lot more than that found in most other oil producing countries. For states eager to promote their medium- and long-term access to substantially increased oil supply, therefore, the Gulf is bound to be a – and probably the – key area of interest.
The shares which different Gulf states have in proven oil reserves, the current rate of production, and the likely period over which existing reserves could last (given current rates of production) can be seen from Table 1.1. Saudi Arabia, with 19.1% of global reserves, and currently producing 40.8% of all the oil produced in the Gulf, clearly occupies a central role in the oil market.
With reserves expected to last for 72.4 years at current rates of production, it is bound to retain this central role through most of this century. At present, moreover, it has a spare oil-producing capacity of some 2.5 million b/d, such that it could satisfy short-term increases of demand for its oil. It is expected to retain a buffer of spare capacity through to 2020, at least. Nonetheless, the proven reserves of Iran, Iraq, Kuwait and the UAE are also very substantial and, given the lower rate of current extraction, are expected to last longer than Saudi Arabia's. It is widely expected that estimates of Iraq's proven reserves will increase as a result of the new explorations which are currently being undertaken or are envisaged. At present, however, all of these states have relatively limited spare capacity. In the case of the smaller states, Kuwait and the UAE, this is because they have little incentive to increase production – their financial needs are covered by the existing level of revenues, and it is in their interest to conserve their reserves for the long-term.
With regard to natural gas, the Gulf states also possess substantial reserves but not quite so critical a position in global supply. As can be seen from Table 1.2 they collectively account for about 40% of global natural gas reserves, but only 13.9% of daily production. Only 4 of the Gulf states are currently exporting natural gas: Iran, Qatar, the UAE and Oman. Saudi Arabia is currently consuming all of the natural gas it produces, and Iran consumes the major part of its natural gas production. The only two states which have the potential to be major producers of natural gas in the long run are Qatar and Iran, which between them account for about three-quarters of the Gulf's natural gas reserves and 29.3% of global reserves. Qatar is currently the world's third largest gas producing country, after Russia and Norway. The volume of Russia's production in 2010, however, was about twice as great as Qatar's. It seems likely that the other Gulf states, besides Qatar and Iran, will use most of their natural gas for domestic purposes and will not figure strongly in export markets.
The manner in which Gulf hydrocarbons affect the relationships between Gulf and Asian states, however, is not affected by present perspectives alone. Every Asian state which is likely to import substantial quantities of oil or gas in the future has to take into account the longer perspective: what the size of its own demand will be in future decades, how that will be affected by changing demand from other countries, and how much supply will be available from oil-producing countries in different parts of the world. Energy security needs to be seen in the long term, and states have to plan for that long-term and view their external relationships accordingly. The "long-term" which will be considered here is the period through to 2030, mainly because this is a time-span used by international energy analysts in making predictive projections on energy production and consumption.
Overall primary energy consumption, on the base of a median projection, is expected to grow by about 39% over the 2010-2030 period. This reflects underlying trends in population and income growth: world population over this period is expected to grow by 1.4 billion, with real income rising by about 100%. The rate of growth in primary energy consumption is nonetheless rather lower than that for the previous 20 years, which was approximately 45%. The deceleration of consumption growth reflects the fact that energy efficiency (energy per unit of GDP) rises with the level of industrial development. As would be expected, therefore, most of the increase in energy consumption will be in those states which are industrialising rather than those with an established industrial infrastructure. In fact, energy consumption by non-OECD countries is expected to rise by about 68% by 2030, averaging 2.6% per annum, and to account for about 93% of all growth in energy consumption. The corresponding growth for the OECD countries is no more than 6% over that 20-year period, and in fact actually declines in the years after 2020. There can be little doubt, therefore, that energy needs in industrialising Asia will be a significant concern of governments in the region.
Between different forms of primary energy, the prediction is that there will be a slow move away from oil and towards gas and non-fossil fuels (with renewables growing fastest). The share of oil in current primary energy supply is expected to fall by 2030 from its present 33.6% to a point where it converges with gas and coal at about 26-27% each. Nonetheless, the demand for oil will increase overall, and will remain a critical source of energy supply. Demand for global liquids (mainly crude oil, but also including a small element of biofuels and other liquids) is expected to rise by 16.5 million b/d by 2030. Increasing demand in non-OECD Asia would come to 13 million b/d, while demand in the OECD, having peaked in 2005, would decline by about 4 million b/d. The consumption of oil in non-OECD countries (both Asian and non-Asian) would overtake OECD consumption around 2015. China would constitute the largest element in the growth in oil consumption, with consumption rising from about 8 million b/d in 2010 to some 17.5 million b/d in 2030. It would by then have overtaken the US and become the largest oil consumer in the world – despite the fact that oil currently constitutes only some 20% to China's overall energy needs.
An additional supply of 16.5 million b/d of global liquids, therefore, will be needed overall by 2030. This is attainable and, although there will be significant changes in the nature and sources of the supply, the Gulf states remain central to the provision of the supply. Declining oil production in the established fields of Europe, Asia Pacific and North America will be partially offset by newly-developed or developing fields in Brazil and the former Soviet Union. This, however, leaves the gap caused by rising demand. Some additional supply will come from biofuels, oil shale and oil sands, but some 75% of the increased supply will need to come from OPEC – whether as crude oil or natural gas liquids. This would leave OPEC with a larger share of world liquids production than it has at the moment; the percentage would rise from 40% to 46%. A substantial part of the increased OPEC supply would need to come from the Gulf states. Saudi Arabia, which has spare capacity for producing an extra 2.5 million b/d at the moment, might be expected to supply about 3 million by 2030, and Iraq, which currently has very ambitious (and probably unrealistic) plans to increase production capacity to some 12.5 million b/d, could also supply some 3 million b/d (additional to the 2.5 million which it produces at present).
3. Asian Countries as Markets for Gulf Hydrocarbons
China's need for increased supplies of oil has been given considerable attention by outside observers. This need is substantial and is likely to become more so. China is itself a major producer of oil — in 2008 it ranked as the fifth largest in the world. Nonetheless, its demand for oil first exceeded supply in 1993, and its dependence on imported oil has increased steadily since then. In 2009, oil imports for the first time exceeded local production, accounting for 52% of the oil consumed in the country, and the percentage accounted for by imports is expected to rise to 54% in 2010. Chinese oil production is expected to begin to decline after 2020, at which time oil imports are expected to account for about 64% of consumption. Between 2010 and 2030 China will need, according to IEA estimates, to import an extra seven million barrels-a-day (b/d) on top of the 3.8 million it was importing in 2009. There are many reasons why obtaining the extra seven million may be problematic. Other rapidly industrializing countries will also be looking to increase their oil imports, and some analysts believe that global oil production has little potential to increase significantly above the c. 86 million b/d produced at the time of writing. Levels of investment in the oil industry may also be insufficient to support increased production (in part because with higher prices, oil producers have less incentive or need to accelerate the depletion of their oil reserves).
Of course, the Gulf is not the only area from which China will be able to draw supplies. At present (2011), Angola is the second largest supplier of oil to China, and that supply is likely to increase in the future. There is also potential in other parts of Africa, in Central Asia and the Caucasus, and in new areas where oil exploration has recently appeared promising, such as off the coast of Brazil. In some regions China may be able to access oil supplies that Western countries are unable to access for political, geographical, or environmental reasons. Nonetheless, the reality is that most of China's additional oil supply will have to come from the Gulf. This is not only because almost two-thirds of the world's proven oil reserves are located there (with depletion dates outstripping those of all other producers), but also because the gap between local consumption needs and production capacity are greater in the Gulf than elsewhere — despite the fact that consumption is rising quickly in Gulf countries. The Gulf producers, then, will have more oil to sell on international markets than other producers.
The dependence on Gulf oil also applies to India. According to the U.S. Energy Information Administration (EIA) statistics, India was consuming some three million barrels-a-day of oil in 2009, compared to the eight million consumed by China. Whereas China was itself producing 3.9 million b/d, however, India was only producing 880,000 b/d, such that imports accounted for 70% of India's oil supply as opposed to 52% of China's. The 2009 EIA International Energy Outlook estimates that India will be consuming an extra two million b/d of oil by 2030, while China will be consuming an extra seven million. Both countries are therefore in need of substantially increased quantities of oil, and it seems likely that a significant amount will need to come from the Gulf. The extent to which world oil production will be able to expand to meet such substantial increases in demand is a contentious issue. Specialists, oil companies, and international energy organizations have conflicting views about the stage at which the world will encounter "peak oil."
While it may seem that China and India are destined to be in severe competition over Gulf oil, in fact the situation is little different from that which affects many other countries (in Asia as elsewhere). Japan has very limited domestic reserves of oil and a high (although falling) demand for it; South Korea has no domestic reserves at all. The economies of many other countries are, and will for long remain, dependent on Gulf oil, and the global community has a collective interest in ensuring that Gulf oil is accessible to all who need it.
As far as Southeast Asia is concerned, each of the countries has a different balance between demand for, and domestic supply of, oil. Figures for 2009 will be given here. Only Singapore relies entirely on imports to cover its oil consumption (927,000 b/d); only Malaysia produces more oil than it consumes (578,000 b/d, as against 554,000); Indonesia has relatively small oil import needs at present (with production at 946,000 b/d and consumption at 1,268,000); and Thailand relies mainly on imports (with production at 238,000 b/d and consumption at 940,000). EIA projections for the growth of oil consumption in the region are that by 2035 oil consumption will have doubled while oil production will have declined. The quantities of oil concerned, however, are relatively limited, giving these countries more flexibility over sourcing their oil supplies than India and China have.
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Excerpted from Asia-Gulf Economic Relations in the 21st Century: The Local to Global Transformation by Tim Niblock, Monica Malik. Copyright © 2013 Gulf Research Center Cambridge. Excerpted by permission of Gerlach Press.
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