Paradigms of asia talmiz ahmad

2nd Asia Energy Security Summit 2012Colombo, 29 Feb – 1 March 2012

Paradigms of Asia and the Concepts of Energy Security

Talmiz AhmadFormer Ambassador of India to

Saudi Arabia, Oman and the UAE

1

Contents

1. The new Silk Routes2. Gulf Oil3. GCC’s Economic Scenario4. Pan-Asian Connectivities5. Centrality of Energy Security6. Producer – Consumer Cooperation7. Towards a Pan – Asian Security Paradigm

2

THE NEW SILK ROUTES

Trade and business corridor across Asia.

Largely the result of: High growth rates in China and India Energy potential of the Gulf and availability of investible funds Emergency of Central Asian Republics as sovereign states

• Over the past three decades, China’s economy has grown fifteen-fold to become the world’s second-largest economy after the United States.

• By 2050, India is expected to be the world’s third–largest economy. • In 1989, the ten tallest buildings in the world were all in North America; in 2012,

seven of ten are in Asia.

3

GULF OIL IN THE GLOBAL SCENARIO

4

GCC’s Economic Standing The last ten years have generated oil revenues that are

unprecedented in global economic history: it is estimated that, as a result of oil price increases before the economic downturn, there was an additional transfer of US$3 trillion to oil producers, the largest wealth transfer on record.

Combined nominal economy of the GCC crossed $ one trillion in 2010, climbing from a $ 345 billion economy in 2000, and is expected to soar to $ 1.5 trillion in 2015 and $ 2 trillion in 2020. This will increase the GCC contribution to global GDP from 1.5% in 2010 to 2% in 2020.

Saudi Arabia, UAE and Kuwait will post real growth of 4-5% pa and nominal growth of 9-10% pa till 2020.

5

The Arab Spring:Economic Priorities of the GCC Countries

1. Energy2. Infrastructure3. Welfare4. Industry/Services5. Human Resources

6

Intra-Asian Economic Connectivities

7

(A) Energy

•Oil consumption in Asia will grow by 4.4% per year on average over the next five years, while the OECD’s demand is expected to plateau.

•The Middle East, given its geographic location and oil production capacity, will probably remain the dominant supplier to Asia. Imports meet 75% of Asian demand, and are expected to account for 90% by 2030.

(B) Trade• Since 2006, Asia has been the GCC’s largest trading partner and

accounted for 55 per cent of the region’s total foreign trade of around $765 billion in 2009, increasing from $ 260 billion in 2005.

• GCC – China Trade: $74 billion (2008) [increasing from $ 1.5 billion in 1991]

• GCC-India - $ 91 billion (2008-09)* Indian imports from GCC = $ 59.56 bn* Indian exports to GCC = $ 32.12 bn

• Trade between ASEAN and GCC shot up from $18.3 billion in 2002 to $57.1 billion in 2006. Two-way trade during the next five years reached $ 160.1 billion, a 213 percent growth.

8

(C) Investment• GCC countries invest an average of 80% of their wealth offshore. Asia will

be a key market for GCC investors in coming years, with cross - border capital flows between the GCC and Asia climbing from US$15bn in 2007 to as much as US$290 bn by 2020.

• Gulf countries invested $60 billion in Asia during the period 2002-2006. However, during this period, Gulf investors also announced some longterm infrastructure investments in Asia in the coming years, suggesting that the GCC could put in $ 250 billion into Asia between 2009-14.

• About 11% of FDI from the Gulf has gone to Asia so far. But, by 2021, it could nearly double to 20%, while the share of West Asian capital flowing to the West will fall to about 50% of the total, from the current proportion of about 75%.

• Abu Dhabi Investment Authority, one of the largest sovereign wealth funds of West Asia, aims to have 8-12% of its estimated $500 billion-plus fund invested in emerging market stocks, with Asia as the key destination.

9

What is Energy Security?What is Energy Security?•Assured and, where possible, exclusive access to energy resources at affordable prices to obtain sustainable economic growth rates and national economic development.Why are there concerns over Energy Security?•Energy security is essential to achieve economic growth rates •High global demand and attendant supply constraints, as also geopolitical developments, are continuously pushing up oil and gas prices.•With supply constraints, there is considerable international competition to secure these resources.•National policies for energy security have to be compatible with concerns regarding climate change, particularly in regard to Greenhouse gases. 10

Energy Security in Asia• In recent years, the most significant development in the consumption

of hydrocarbon fuels is the increase in Asian demand. In fact, there has been a consistent increase over the last few decades: between 1970-94, Asian energy demand increased by 400%, with demand for oil increasing by 274%; world demand growth during this period was only 63%.

• China’s widening gap between domestic supply and demand and a growing appetite for foreign oil, oil and energy issues have turned increasingly into a core national interest, energy security is not only economically vital, but also has political, diplomatic and military implications.

- Wu Lei

11

Co-operation for Energy Security: • Unique features of energy security (a) Inherently cooperative (b) A dynamic concept

• The logic of Global Co-operation (a) Need to mobilize resources globally: * Hydrocarbon resources to meet global demand over next 30-35 years are available: new technologies continue to yield fresh discoveries and augment supplies from old fields. * Oil will be available in physically challenging areas such as the deep sea or frozen terrain or environmentally sensitive locations. * Exploration and development of these resources will require rather huge investments

amounting cumulatively to over $ 5 trillion up to 2030, @ $20 per annum. (b) Need to protect the entire energy supply chain and infrastructure: * production facilities, transport, refining, pipelines, storage facilities, power plants and transmission lines. * Currently, daily 40 million barrels of oil cross the oceans in tankers; could come 67mill. barrels in 2020. * Currently, 150n million tons of LNG is transported by sea; could come 460 MT by 2020.12

Producer – Consumer CooperationThe opportunity, Your Excellencies, lies in fashioning a more fair, more just and more remunerative oil order for all of us in Asia-in which the Asian producer is ensured a stable, secure and sustainable return for a most precious but depleting natural resource, and the Asian consumer is assured a stable, secure and sustainable regime within which to promote progress and prosperity for that deprived one-half of humankind and inhabits our shared continent of Asia.

-Mani Shankar Aiyar, Indian Petroleum Minister, Jan 2005

We consumers need energy. You producers have energy. We need assured sources of supply as much as you need assured markets. Both of us – producers and consumer – can jointly invest in infrastructure. We can together invest in exploration (as we are, for instance, already doing in Sakhalin); we can together invest in production (as we already doing in numerous producing fields in Asia and elsewhere); we can together invest in transportation (I call upon your imagination to summon up an Asian oil and gas grid); we can together invest in ship building and shipping, in ports and terminals; we can together build refineries and gas processing plants and power generation stations and petrochemicals units; in short, we can together take on the world! That would be true Energy Security.

-Mani Shankar Aiyar, November 2005

13

The Regional Security Scenario

• Implications of the “Arab Spring”• The Saudi – Iranian divide and strategic

competition• The GCC – NATO Alliance against Iran: the

Israeli factor• Regional theatre confrontations;

* Bahrain * Syria

* Iraq * Lebanon

14

China’s Ties with Gulf CountriesIn the coming 5-10 years, China will have to import 200mn tonnes of oil in 2010, and 300mn tonnes in 2020, with 144mn tonnes and 220mn tonnes coming from the Middle East and North Africa respectively, plus oil from other parts of the world (Latin America and Asia-Pacific). The two figures, when put together, indicate that China’s oil import from the Middle East and North Africa will make up over 70% of the country’s total volume of oil imports.

- Wu Lei

India’s Relations with the GulfIndia’s Relations with the Gulf 1. The region is the principal source of India’s crude oil requirements, providing over two-thirds of annual imports: these imports, as also those of natural gas, from the region will increase over the next 20 years as India’s energy demands increase. Thus, the security of the oil facilities and of the sea-lanes is a crucial element in India’s long-term energy security interests.2.The region is a major economic partner and a market for its goods, as also a partner for joint ventures and transfer of technology arrangements, and a principal source of remittances from the resident Indian community. The financial value of India’s ties with the GCC is over $ 180 billion per year. 3. Concerns relating to the welfare of India’s 6.5 million - strong Indian community require that India maintain the closest possible political ties with the countries of the region. 15

Towards a Pan – Asian Security ParadigmThe Asian Quest for Energy Security could lead to Asian regaining its traditional place-a place it has held for thousands of years of recorded history and lost only in the last two hundred years or so – in the vanguard of the advancement of human civilization.The Asian renaissance brought us all to independence and liberation. Now, the Asian Resurgence depends on energy cooperation in Asia. The 21st century will indeed be the Asian century only if Asian countries – buyers or sellers – join hands together in a continent – wide bid at bringing Asia together and keeping Asia together. I am confident that we will.

-Mani Shankar Aiyar, Indian Petroleum Minister, Jan 2006

Bases* Shared energy interests * Shared Security Interests

Constraints •Deep divisions within the region•The problem of Iran•The robust US military presence and interventionist policies •Interests of other regional and extra-regional role-players: Turkey, Israel

16