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Energy conservation needed to avoid resource conflicts

DUBAI — Oil constitutes more than 90 per cent of all transport fuels and 35 per cent of the world's primary energy demand — no doubt, the world economy is addicted to oil and the Gulf countries have what everybody is longing for: They possess a breathtaking 61 per cent of worldwide reserves and contribute 30 per cent of production. Thus, with time, their importance will grow further.

As demand continues to rise and production in other regions like the US and the North Sea declines, more and more countries will have to turn to the Gulf for imports of oil. On top of that the region becomes increasingly important in the gas business, as Qatar and Iran intend to expand their exports. All this constitutes a potentially explosive cocktail of geo-strategic interests from various sides, namely from the US, West Europe and China.

All of them consume much more oil than they produce. China used to be a net exporter until 1993. But now it imports 40 per cent of its requirements — in 20 years it will be 70 per cent. No wonder China is heavily engaging in energy diplomacy and trying to secure oil imports from around the world. In Africa it has vast investments in Sudan, Angola, and Nigeria while in Canada it has taken on tar sand projects in the north of the country. Recently it bought Petro-Kazakhstan for $4.2 billion and the first pipeline from Kazakhstan to China has been inaugurated.

Half of its imports though come from the Gulf, mainly Saudi Arabia. King Abdullah and the Chinese President Hu Jintao emphasised this increasingly important relationship during a series of mutual visits at the beginning of this year. China is building a multi-billion sea port in Gwadar, Pakistan that may serve as the starting point for a pipeline into its west, while Saudi Aramco invests in Chinese refinery capacity for sour crude and helps the country build up a strategic oil reserve.

So far two thirds of the Gulf's oil exports go to Asia, all of whose countries are as energy hungry as China. Only 3.4 per cent of the worldwide oil reserves are located in this huge land mass where half of the globe's population lives. But in the future there will be more soliciting from the US and West Europe. Germany, for example, gets a third of its oil from Russia and a third from the two North Sea producers, UK and Norway. So far, it only imports 10 per cent of its needs from the Gulf countries. But as the production in the North Sea is declining rapidly, it will have to turn to other exporters soon to meet its needs. Given their reserve dominance, most likely these exporters will be from the Gulf. The US's import dependence finally has grown from near self sufficiency until 1972 to 60 per cent now. One of the first things the Bush Administration did in 2001 was to establish an Energy Task Force which basically came up with two recommendations: Oil-drilling in natural reserve parks in Alaska and geo-strategic securing of foreign oil imports.

This unilateral securing of foreign energy sources went terribly wrong in Iraq, as we now know. The Iraqi quagmire is not only causing immeasurable human loss, it also prevents any meaningful recovery of the country's oil industry.

Oil production remains stubbornly below pre-war levels, which were already depressed and anti-Americanism in the region has reached new highs. The disastrous outcome has shown the limits of unilateralism and the necessity for cooperation with the producer countries and international dialogue on energy issues.

Resource conflicts can be avoided only if every side feels that it will get a fair share of the world's dwindling energy sources. Europe so far has been content to sail in the geo-political wake of the US but may consider a more neutral stance, while the nations in the southern hemisphere especially in the rapidly growing emerging markets have rising energy needs that they want to be seen addressed. Among them are the Gulf states themselves, which have high population growth and ambitious and energy intensive development plans.

(Eckart Woertz is Programme Manager Economics at Gulf Research Centre.)