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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (27766)	4/18/2005 12:38:03 PM
From: RealMuLan	Read Replies (1) \| Respond to of 116555

Securing Asia's energy future Cooperation among the region's countries will help guarantee a steady supply of oil and natural gas. Ivo J. H. Bozon, Subbu Narayanswamy, and Vipul Tuli The McKinsey Quarterly, Web exclusive, April 2005 As Asia's appetite for energy surges, the desire of the region's leaders to ensure a reliable flow of reasonably priced oil and natural gas will also intensify. If they fail, A sia's fast-growing economies could stumble. A race is now under way—between China and India, in particular—to buy energy reserves in such far-flung places as Iran, Russia, and Sudan. The magnitude of Asia's future energy needs explains this urgency: the region's share of global consumption will nearly double in the next 20 years, to about 48 percent for oil and 22 percent for natural gas. By 2010, the region's oil consumption will surpass North America's. Such rapid growth has led world energy markets to their most critical juncture in more than two decades: today's tight supply and hefty prices could conceivably spark an energy boom and bust like the one that shook the world economy in the 1980s. How might this scenario come about? If, in response to the tight supply, oil-producing countries that don't belong to the Organization of Petroleum Exporting Countries were to add significant capacity, thus increasing their market share, OPEC might in turn attempt to boost its production, generating a global oversupply. The price volatility inherent in this kind of situation would be damaging to both producing and consuming countries. Confronting the challenges Fortunately, Asian governments and their national oil companies can do plenty to promote stable prices and reliable supply in the region—but only if they work together. The first step is for countries to acknowledge the challenges: Asian oil and natural-gas markets are currently neither as deep nor as transparent as are those in Europe and North America. Buyers can't hedge risks, and sellers get less for their products than they would elsewhere because of the relatively inefficient and volatile markets. Moreover, Asia has limited strategic reserves, which can soften the impact on prices in the event of a sudden supply shortage. Asia also lacks the infrastructure to transport large quantities of natural gas from the well to the consumer—even though the cost of pipelines continues to decline, making them a viable option over distances of thousands of miles. Since pipelines cross borders, the difficulty is that nations must work together to secure funding, agree on routes, and set equitable transportation tariffs. Even projects to transport liquefied natural gas by ship often require both the supplying and the consuming countries to invest in infrastructure. It may sound unlikely, but many of the world's big oil-producing countries don't have sufficient resources to expand their production in order to meet Asia's future energy demand. Capital investment in Africa and the Middle East alone will need to increase to $45 billion a year over the next three decades, up from $8 billion a year during the past one. That amount is more than Middle Eastern countries can spend and still provide education, health care, and other social services to their rapidly growing populations. Foreign partners will likely be needed to bridge this funding gap and spread the investment risk. Where to cooperate Asian governments should take several concrete measures in a concerted fashion. As a crucial first move, they need to create a regional market for petroleum products—one that attracts the backing of key buyers and sellers and has the financial sophistication to enable risk hedging. They also need to establish a regional benchmark crude oil (similar to Europe's Brent blend) that can serve as a pricing yardstick for other types of crude. Major buyers (such as China, India, and Japan) and big sellers (such as the OPEC producers) should commit themselves to using a single exchange in order to ensure that the market has the necessary volume and financial liquidity to be efficient. Countries should help the market build storage facilities equal to about 30 percent of its daily volume to smooth physical delivery. In addition, all parties should agree on standard contracts and common regulations for the settlement of transactions and on arbitration to resolve disagreements. Governments should also move to improve energy security in the region, taking steps to ensure an adequate supply of oil and natural gas in the event of a major refinery fire or other supply disruption. For starters, governments in Asia and the Middle East will need to begin sharing detailed information on demand, supply, and inventories. The International Energy Agency's role in compiling detailed statistics to help reduce price volatility and avoid market panics for its member countries in Europe and North America demonstrates the benefits of such cooperation. Buyers and sellers should also jointly increase the strategic reserves for Asian countries. These reserves currently stand at 25 days of demand or less but should be closer to the United States' 60-day supply or Europe's 90 days. Moreover, the region's governments should establish contingency plans for opening the reserves' spigots in case of an emergency. Cooperation between buyers andsellers could include investments in each other's energy infrastructure—a trend that has already begun This cooperation between buyers and sellers could extend to include investments in each other's energy infrastructure—a trend that has already begun in a small way. Producers such as Kuwait and Saudi Arabia could purchase stakes in refineries in China and India. The latter two countries could increase their investment in exploration and production in the Middle East's extensive oil and gas fields, thus helping to close the investment gap Middle Eastern nations are likely to face. Finally, energy producers and consumers alike could invest in a pan-Asian natural-gas distribution network similar to those that already link countries within Europe and North America. None of these tasks will be easy, of course. Aligning disparate priorities and forging common goals can take months or years of painstaking negotiations. Cultural differences and historical rivalries can often overrule common sense. The way for Asian countries to overcome such hurdles is to focus initially on the areas of shared interest that are relatively uncontroversial and inexpensive, such as promoting greater transparency. To make progress, leaders need a regular forum where they can address sensitive geopolitical issues. The inaugural Asian ministers' energy roundtable, in New Delhi, in January 2005, represents a promising start. Cooperation among the region's energy-hungry nations, as well as between them and the energy-rich producers in the Middle East, is a good strategy to ensure that affordable oil and natural gas continue flowing to the businesses and consumers that need it. For Asia's economies—and the rest of the world—making the right decisions now will be a boon to them in the decades to come. mckinseyquarterly.com

To: RealMuLan who wrote (27766)	4/18/2005 1:02:15 PM
From: Pravda	Read Replies (2) \| Respond to of 116555

OT: Perhaps you could stop looking at the Japanese wartime murders and look at your own government's more recent murders. I don't ever remember an apology for the dead from the Great Leap Forward,the invasion of Tibet, the invasion of Vietnam or the invasion of South Korea. People's Republic of China, Mao Zedong's regime (1949-1975): 40 000 000 * Agence France Press (25 Sept. 1999) citing at length from Courtois, Stephane, Le Livre Noir du Communism: o Rural purges, 1946-49: 2-5M deaths o Urban purges, 1950-57: 1M o Great Leap Forward: 20-43M o Cultural Revolution: 2-7M o Labor Camps: 20M o Tibet: 0.6-1.2M o TOTAL: 44.5 to 72M Pravda