FICCI – Perchstone & Graeys New Delhi, 7 June, 2013 Fuelling Economic Growth: Challenges for Emerging Markets Talmiz Ahmad Former Ambassador of India to Saudi Arabia, Oman and the UAE, and President, IOT Infrastructure & Energy Services, Dubai Office 1

Changing Global Economic Scenario Over the last ten years or so, the pendulum of economic growth has been shifting Eastwards, so that Asian countries have greatly expanded their share in the global GDP.  Asia’s share in the global GDP, which had started declining from the early 19 th century and had reached its lowest point in 1950, started showing an upswing from the last quarter of the 20 th century. Now, the developed countries’ share in global GDP, which was 60% in 1973 and 50% in 2001, is likely to be 33% in  By 2025, the Chinese economy will be the same size as the US economy with India the fourth largest after Japan; by 2050, the largest economy at the world will be China, which will be twice the size of the US economy, with the Indian economy following a close third, and almost on par with the USA.  the combined India-China GDP will exceed that of the G-7 OECD economies by 2025; by 2060, it will be more than one and a half times larger, while in 2010, India and China had accounted for less than half of G-7 GDP; in 2060, the combined GDP of the two will exceed that of the existing OECD area, while today it amounts to only one-third of it. 2

Global Energy Security  Energy constitutes the foundation of the global economy  Concerns relate to: * struggle to access * insecurities of supply * influence of (and on) global economics and geopolitics  Fundamental shift in global energy equations: * between 1980 – 2000, world energy consumption grew by 25%, but developed countries were using two – thirds; * between , world oil demand grew by 12%, but the split between developed and developing countries was 50:50. 3

Asia Energy Scenario  World oil reserves at present are about 1120 billion barrels of proven oil reserves worldwide, of which 735 billion barrels (62 percent) are situated in the Gulf region. Moreover, 40 percent of world gas reserves are also located in this region.  The daily production of crude oil by the Gulf states will increase from 26 million barrels per day in 2010 to 35 million barrels per day in 2020, the share of the Gulf in the world crude oil production growing from about 27 percent today to 33 percent by  In Asia’s industrializing countries, the average annual energy consumption growth is 3 percent, while this rate is 1.7 percent worldwide. Asia’s consumption growth accounts for 40 percent of the world’s energy consumption.  Developing Asia (Asia, not including Japan and South Korea) will increase its demand for energy by more than 42 percent by 2030, while that of the United States and Canada will increase by only 26 percent. 4

GCC Oil Exports In 1990, the developed countries were buying 45% of GCC oil exports, with only 15% going to emerging Asia. Now, in 2013, the developed countries are buying 23%, while Asia is purchasing 43%. China In 2009, China overtook Japan to emerge as the world’s second largest oil importer. With Asian production not showing any significant upward growth, imports, which are already meeting 75% of Asian requirements, will reach about 90% by 2030, at 29 million bpd. The Gulf will be the principal source of Asia’s oil requirements. India At present, India imports 60 to 70 percent of its oil needs, and by 2025 will become the third largest energy importer in the world by importing 91 percent of its oil needs. In 2010, oil consumption in India was 4 mbd by 2010, of which 3.35mbd was imported. This figure will increase to 5 and 6 mbd respectively in the years 2020 and At present, India obtains 9% of its energy consumption through natural gas. India’s natural gas consumption in amounted to 166 cu. m which will increase to 322 cu. m by

Global supply 6  Oil changing form: geographically, geologically, chemically and economically  Conventional supplies have plateaued and are slowly decreasing; will be increasingly replaced by “new oils”: oil sands; tight oil; new heavy oil; deep water oil, oil shale  Global oil supply could increase upto 40 mbd by 2020 with increased supplies from Iraq; USA; Brazil (deep water presalt) and Canada (tar sands)  Increasing abundance of oil and gas Oil : * untapped conventional resources in deep sea and Arctic * Unconventional oil: Global estimates: 3.5 trillion barrels * USA: 800 billion barrels * China: 720 billion barrels Gas : Unconventional shale gas in place globally – 35,000 TCF v/s 6400 TCF conventional gas

7 US Energy Scenario  In the coming decade, USA will become the world’s largest producer of liquid hydrocarbons: crude and NGL liquids such as propane and ethane.  The US will be able to cut imports from the present 10 mbd to 3 mbd by early 2020s, with this import demand being met primarily from Canada and Mexico: negligible dependence on West Asia.  US “tight oil” production will increase from 0.9 mbd in 2012 to 2.9 mbd in  US shale gas production has gone up from 0.39 TCF in 2000 to 4.8 TCF in  US has 273 TCF proven reserves of shale gas and 860 TCF “technically recoverable” resources.

Prices  Fundamentals: Demand - supply  Futures markets: “paper barrel”/ “electronic barrel”  Geopolitical factors: the “fear premium”/ chokepoints  Shifting “fair” price bands : (from producer’s perspective) * 2004 : $22 – 28/b * 2005 :$40 – 50/b * 2011 :$80/b * 2012 : $100/b Rising threshold of minimally acceptable oil price due to GCC social spending: $60 to $80 to $90:  A rise of $10m oil price shifts $320 billion a year from consumers to producers.  Prices affected by: (a) Iran sanctions (b) Economic situation in Europe and USA It appears in hindsight that insufficient consideration was given to major oil issues in the swift move to sanctions. There was little consideration of objectives and the oil instruments to attain them, of the stakes involved in Iran’s nuclear policy and the oil risks involved in protecting those stakes; and there was clearly no consideration of how strategic action and reaction would affect oil prices and what the impacts of significantly higher prices would be on global growth. -Ed Morse, 28 Feb,

India’s Energy Sector Scenario: * Dependence on imported oil and gas: (a) oil: 0.7% of world resources; consumption 3.9% of world resources (b) gas: 0.8% of world resources; consumption 1.9% of world resources * Small pool of skilled manpower * Inadequate upstream infrastructure * Longterm dependence on fossil fuels * poor development and exploitation of domestic coal Structure: * Sector politically sensitive and therefore highly regulated * NELP: 107 oil and gas discoveries in 36 blocks; commercial production from only six discoveries in these blocks. * Too many Ministries in the energy sector * Foreign participation: 60 approvals from eight Ministries 9

10 India’s energy requirements to 2032  India needs to sustain an 8% to 10% economic growth rate, over the next 25 years if it is to eradicate poverty and meet its human development goals.  To deliver a sustained growth rate of 8% through and to meet the lifeline energy needs of all citizens, India needs, at the very least, to increase its primary energy supply by 3 to 4 times and its electricity generation capacity/supply by 5 to 6 times of their levels.  By , power generation capacity must increase to nearly 800,000 MW from the current capacity of around 160,000 MW, inclusive of all captive plants.  Upgradation of transmission facilities requires $ 55 billion in next five years.  Power sector as a whole needs investment of $ billion over next 5 years.

11 India’s energy diplomacy consists of substantial, robust, multifaceted engagements across the world to promote India’s energy security interests. These overseas engagements are aimed at promoting the following: (i) Enhancement of domestic resources and capabilities (ii) Acquisition of assets abroad; these are of two types: *Equity participation in producing fields; and *Exploration and production (E & P) contracts in different parts of the world, both on-shore and offshore (iii) Participation in downstream projects (refineries and petro- chemicals) on the basis of criss-cross investments (iv) Finalisation of longterm LNG contracts (v) Setting up of trans-national gas pipelines (vi) Asian dialogue for Energy security India’s Energy Diplomacy

Co-operation for Energy Security: Indian perceptions  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 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 $20billion 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  Currently, 150n million tons of LNG is transported by sea; could come 460 MT by

Sub-Saharan Africa: Energy Scenario 13 Proven Oil Resources: less than 5% of global reserves *Nigeria(36 billion barrels) *Angola(9 billion barrels) *Sudan(6.4 bb) Small deposits in: Gabon, Congo, Chad, Equatorial Guinea, Cameroon, DRC and Ivory Coast Gas resources: less than 4% of world reserves *Nigeria(5.2 TCF) *Mozambique(4.5 TCF) *Namibia(2.2 TCF) *Angola(2 TCF)

Power Scenario 14 Combined power generation capacity of 48 countries of Sub-Saharan Africa is 68 gigawatts (GW); excluding South Africa, it is 28 GW 25% of installed capacity is not operational; capacity growth has been stagnant Hydropower accounts for 70% of electricity generation. 93% of Africa’s economically viable hydropower potential (937 TWH), 10% of world total, is not exploited. Less than 30% of population of Sub-Saharan Africa has access to electricity, compared to 65% in South Asia and 90% in East Asia. Based on current trends, less than 40% of African countries will achieve universal access to electricity by Per capita consumption of electricity averages 457 kwh annually. [It falls to 124 kwh if South Africa is excluded.] This compares poorly with per capita consumption in the developing world of 1155 kwh. Own generation, i.e., use of generators, is a significant proportion of total installed power capacity: 19% in West Africa.

Power Crisis Exacerbated by 15 * Drought * War * High Oil Prices * Prolonged under investment in new generation capacity * Major failures in utility revenue collection Inadequate Power Infrastructure retards economic and social development Investment required to develop power sector in sub-saharan Africa is $40billion p.a, as against $11.5 billion p.a. at present. * Capture inefficiencies valued at $8.2 billion p.a * Finance from private sector and non-OECD sources * Pooling energy resources through regional power trade: * Increase share of hydropower from 36% to 48%

India-Africa Economic Ties 16 Bilateral trade now $65 billion, a five-fold increase in last seven years India obtains over 20% of its crude oil imports from Africa: Nigeria, Angola, Cameroon, Equatorial Guinea, Sudan, as also Algeria and Egypt. India has extended 150 Lines of Credit valued at $5.2 billion for: * rural electrification (Burkina Faso) * cement plant (Djibouti) * cassava plantation (Cameroon) ITEC programme valued at over $ one billion $ one billion investment in a jv with Africa Union to build a Pan-African e-Network to provide telemedicine and tele-education.

India- Africa Energy Ties 17 E & P contracts in Nigeria, Gabon, Ivory Coast, Sudan Share in production/refining in Sudan Power/Transmission projects: Zambia; pursuing projects in Kenya, Nigeria, Ethiopia, Ghana

What next for India and Africa 18 Within the framework of the New Partnership for Africa’s Development (NEPAD), we support African countries in their industrialisation process through stimulating foreign direct investment, knowledge exchange, capacity-building and diversification of imports from Africa. We acknowledge that infrastructure development in Africa is more important and recognise the strides made by the African Union to identify and address the continent’s infrastructure challenge, [particularly] projects promoting regional integration and industrialisation. We will seek to stimulate infrastructure investment on the basis of mutual benefit to support industrial development, job-creation, skills development, food and nutrition security and poverty eradication and sustainable development in Africa. - Final Declaration, 5 th BRICS SUMMIT, March 2013

19  Energy security is crucial for the growth and developmnet  To take ties forward, we need some original, out-of-the box thinking: * the Nigeria model: linking E&P blocks with national development projects * experience of power trading * experience of hydropower projects

20 India’s relations with Africa are rooted in the history of our solidarity against colonialism and apartheid. Mahatma Gandhi developed the tools of peaceful resistance on this very soil. Our engagement with Africa has come a long way since then and today we have built a new template for partnership in the form of the India-Africa Forum Summit. This partnership is guided by the vision and priorities of our African partners. India will assist Africa in charting its own course through institution- building, infrastructure development and technical and vocational skill development. - Prime Minister Manmohan Singh, BRICS-Africa Dialogue Forum, May 2013