Overcoming the energy crisis

By Fazal Hakeem

Global strategic interests concentrate on how to overcome energy crisis. Today US, Europe, Russian Federation and China are not at ease due to energy supply/ availability situation. Whether it is the ME, Iran’s nuclear program, Central Asian States, former Soviet Republics or now African continent, the ultimate goal is to compete and control the oil and gas resources. Driving of oil prices to the peak substantiated the importance of the black gold that is ‘coal’. George Soros, a European business tycoon has held the speculators squarely responsible for the high crude oil prices. The bottom line is the increasing demand due to accelerated industrial and economic development worldwide. Per barrel price, at present, between US$ 135/140 that could be catapulted towards the 200 dollars mark. Oil prices have soared many folds since 2003 due to a variety of factors including war in the Middle East and rising demand of emerging economies. The European Union Energy Commissioner, Andris Piebalgs has warned about energy crisis, suggesting to find ways for alternate sources of energy.

China known for its balanced approach and peaceful coexistence is in the process to turn its vast coal reserves into barrels of oil through use of the centuries old Coal-To-Liquid (CTL) technology. The Coal-To-Liquid (CTL) process is reviled by environmentalists due to excessive green house gases causes. A feeling to be self-sufficient and to get the oil from coal is a message that oil reserves would not last long. According to a report, US, Australia and India are among the countries looking at utilization of CTL technology but are constrained by environmental concern associated with the process. In case countries with large reserves of coal adopt the CTL technology, they will be able to get a little energy security. Environmentalists are opposing the process, owing to creation of lot of carbon dioxide. In case China goes with the planned adoption of CTL technology, it will be the first CTL project outside South Africa. The CTL technology was adopted by South Africa due to international embargoes on fuel during the apartheid years.

According to a report, the Chinese plant is expected to start operation and convert 3.5 million tons of coal per year into one million ton of oil products such as diesel for cars. Though China’s per day requirement is around 7.2 million barrels. Oil from CTL technology would be just 200,000 barrels a day. Horrifying aspects of the CTL technology is that it is both carbon dioxide and water intensive. Today’s rise in the price of oil and food is considered source of world-wide recession.

Japan a host of the recently concluded energy ministers meeting from G-8 plus China, India and South Korea at Aomori has warned of world wide recession if global oil production is not increased. Japanese Energy Minister Akira Amari stated “if we leave this situation as it is, it could lead to recession of the world economy”. The Ministers at G-8 have expressed serious concerns over the level of oil prices and called for “urgent need for increased and timely investment in the energy sector.” The Ministers called for boosting their own production and asked major oil producers “to increase investment to keep markets well supplied in response to rising world demand.”

In South-Asian perspective Pakistan and India are coopering to facilitate the laying of Iran-Pakistan-India (IPI) gas pipeline. Lately all three countries, agreed to resolve fundamental issues of the pipeline project and start construction from the next year to be completed by 2012. After completion of the project, Iran will supply 2.46 billion cubic gas per day to be shared by India and Pakistan.

US administration is suggesting to get the cheap electricity from Central Asian Republics. By encouraging the supply from Central Asian States, US wants to (i) increase its sphere of influence at the door steps of Russian Federation and China (ii) to involve and help reconstruction and development of Afghanistan where security establishment is the main hurdle and (iii) block economic development of Iran on the pretext of its embryonic nuclear program.

China has also shown interest to be part of 7.5 billion dollars IPI gas pipeline project. The Chinese Foreign Minister Youg Jienchi expressed the views during his visit to Islamabad on 25 April 2008. The rising demand and low production of energy is compelling Pakistan and other South Asian countries to meet the energy requirements through alternative sources. In addition, Turkmenistan-Afghanistan-Pakistan and Iran (TAPI) is another venture to overcome energy shortage. TAPI gas pipeline project is to be completed at the cost of 7.6 billion dollars. The pipeline will pass through Kandahar in Afghanistan and Multan in Pakistan.  

Consensus is being arrived that manipulative market practices are responsible for the oil crisis. There is a need of a strategy, how detect and deter speculative actions.  As per media reports, analysts consider speculations in world financial market has played a key role in skyrocketing of oil prices. The phenomenon is definitely dangerous to global economy.  Primary target of surging oil prices are the ordinary consumers. Its negative impacts are observed in the form of sluggish market, increase in the production cost and subsequent inflation. According to enforcement director for the US commodity futures trading commission Gregory Mocek “it is essential that international regulators coordinate to ensure that they are working as efficiently and effectively as possible to detect and deter manipulation in the global energy markets”. Certainly close coordination and cooperation among the concerned agencies could help in ensuring the market integrity. Assessment of the OPEC Secretary General could not and should not be ignored who has held speculation that  weak US dollar responsible for the crisis rather insufficient output.  

A surge in international oil prices has badly affected Pakistan’s economy. The oil bill is increased by 40 per cent in the last 10 months. To improve strategic oil reserves, the government of Pakistan is considering a request for special oil facility from Saudi Arabia. Pakistan imports around 250,000 barrels of oil a day from Saudi Arabia. Experts are suggesting doing away with oil subsidy being no more sustainable for country’s economy. Aligning the domestic oil prices with international prices is considered essential. The skyrocketing oil prices badly affect the common man. It increases the rich-poor divide.

The middle class in general and lower class in particular worried how to meet the challenge of soaring prices of milk vegetables and wheat etc. The salaried families hit greatly by fast rising flour prices that has pushed the inflation to double digits. It is becoming difficult to meet both ends.

During 5 days ME visit last month, President Bush has called for pumping more crude oil. Though before, his visit to Saudi Arabia, the Saudi Kingdom announced to pump an additional 300,000 barrels of crude oil. The analysts termed the increase just 3 per cent of the total. The Asian economic crisis struck the oil prices plummeting it to below 10 dollars a barrel against US $26 plus range. Definitely, this time the oil producers are not going to let that happen again. Today the primary goal is to keep the supply and demand in close balance. During his visit Bush told Saudi King that high energy prices are hurting some of its biggest customers, including the US and may accelerate the process for alternate energy.

Energy crisis is a common problem. It needs an even handed solution. Any strategy should be thoroughly taken into account. The energy and food crisis is a threat to domestic and international political and economic system.  If the crisis is not resolved, world wide recession is imminent. There is a need to devise short, mid and long-term strategies particularly by developing countries like Pakistan to absorb the skyrocketing prices.