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Tuesday
Dec132005

Energy futures - Even courting India and Saudi Arabia looking beyond

I like to discuss about energy equation and world history from time to time. I have written two posts here and here  before - looking at energy policies mostly with a historical prism. Now, let us look at some of the future trends. Traditionally, western major oil companies have been shy of investing in India for two reasons: a) the red tapism was too much to deal with, and b) they weren't giant oil fields that were screaming to be discovered and produced in India with current technology (if there were elephant oil fields then reason a) would have not even mattered). Also, western major oil companies found opportunities like in Australia more appealing for many reasons.

However, western major oil companies are increasingly facing cul-de-sac in finding new reserves for oil and natural gas. Countries like Saudi Arabia, Russia, and Iran are set to be more powerful in energy politics in future and are essentially out of bounds for western major oil companies. Therefore,  "cash rich but opportunity poor (as The Economist puts it)"  major oil companies have started courting India even if it is tentatively.

From  The Economist, "Starting to Spurge", October 10, 2005.
The big oil firms now seem keen to throw money at projects in Asia. BP has also just announced a $3 billion deal with Hindustan Petroleum, a partly state-owned Indian firm, to build oil refineries and petrol stations in India. Exxon Mobil, Chevron Texaco and BP are now thought to be wooing Reliance, an Indian energy firm, for a stake in a big new gas field in the Bay of Bengal. Chinese whispers suggest that BP may also soon announce a new joint venture with Sinopec, a partly government-owned Chinese firm, in refining and marketing fuels. Exxon is already pushing ahead with plans for a refining joint-venture there too.

Compared with the amounts of money being returned to shareholders, these are still relatively small investments. So why have big oil firms been so slow to take the plunge with large new investments? One reason is that oil executives—with Exxon bosses in the lead—mostly believe that today's oil prices will not last. They are haunted by the memory of $10 oil, and the fear of another price collapse has proved a powerful check on any desire to expand their empires. So too has the fact that the oil-price hike has greatly inflated the price of potential acquisitions. Shrewd oil investors reckon there are few bargains left, and oil bosses mostly agree.

The biggest gorillas in the energy intrigue are state-owned oil companies from Venezuela to Norway to Mexico to Saudi Arabia to Iran, and world major oil companies know that.  However, the companies like Exxon-Mobil have to replenish their reserves  to stay in business. OPEC is sitting very pretty and poised for future and will now find two new suitors - China and India in addition to USA, Europe, and Japan. Perhaps, one needs to view Middle East and Russia with this fact in mind. Also, India and China can play their cards deftly. Both countries can benefit from the influx of cutting edge technology and ideas from the major oil companies.

And  Saudi Arabia is diversifying her economy to cushion themselves from boom and bust cycles of energy industry - even the biggest kid on the block knows that. Japan and Russia with a long history of mistrust are attempting to build grand alliance for energy partnership. This shows that the nature of energy industry is too dynamic to depend on status quo or past.

The crux of energy industry is that one has to plan and look into future boldly even in the face of its fickle nature.  Strategically, even the bold frontiers like hydrogen economy will have to piggy-back on fossil fuel economy, perhaps through natural gas. Energy politics has never been simple, and it is not getting simpler any time soon.

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Reader Comments (1)

I FINALLY put up my post on amitav ghosh's essay. it's a little wandering cos its been so many days. Here it is: http://aranyi.blogspot.com/2005/11/musings-on-dark-side-of-urbanity.html
sorry for the delay!
December 15, 2005 | Unregistered Commenteraranyi

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