Special Report: Facing Energy and Environmental Realities


Deborah Johnson

While critics of President George W Bush's State of the Union Address on 31 January 2006 saw it as a ploy to distract Americans from uncomfortable (for the Republican regime) political realities at home and abroad, some of the issues he raised were not unrelated to those realities. American military adventurism and proselytisation of democracy, it seems, cannot serve as a guarantee of US interests. The US, said Mr Bush, was 'addicted to oil, which is often imported from unstable parts of the world'.

In the aftermath of Hurricane Katrina oil prices peaked on 30 August 2005 at a record US$70.85 per barrel for Light Crude. They have since drifted back. At the time of writing the February average of Light and Brent Crude oil was running between US$60-61 per barrel. This contrasts sharply with prices (not inflation adjusted) for Brent Crude oil of just under US$20 per barrel in 1990 before the first Gulf War and US$20-30 prior to the second Gulf War starting in March 2003. However, other factors have also come to bear - in particular, the increasing demand for an oil supply, which is becoming more difficult to extract. The days of 'cheap oil' are apparently over and with concerns over global warming, attention is being focussed anew on 'alternative' and renewable energy sources which are becoming increasingly attractive economically, politically as well as environmentally.

According to Earth Trends 2005/IEA statistics (for 2001) (http://earthtrends.wri.org/datatables/index.php?theme=6), the USA is by far the largest consumer of energy (from all sources) at a massive 22.8% of total world consumption. It is followed by China (11.4%), the Russian Federation (6.2%), India (5.3%) and Japan (5.2%). However, looking at total per capita energy consumption, Iceland ranks number one followed by the United Arab Emirates, Canada, the USA and Singapore. Despite efforts to find alternative energy sources, fossil fuels (coal, oil and gas) remain the dominant fuel source at a global average of 79.5% of total energy consumption. Running above the average for fossil fuels are the Middle East and North Africa at 96.9%, (Australia is at 94.2%); North America at 85.3%; Europe at 84.2% in contrast to Sub-Saharan African countries (South Africa and Namibia excluded) which rely on solid biomass for 50 to 90+% of their total energy requirements. France leads in nuclear power production with some 41.3% of its total energy (and 78% of its electricity) requirements coming from its 59 in-service nuclear reactors. Lithuania (at 37%, and in decreasing order) Sweden, Bulgaria, Switzerland down to Slovakia (at 24%) derive significant percentages of their total energy needs from nuclear sources. Leading hydroelectricity consumers (and producers) are Paraguay, Kyrgyzstan, Tajikistan and Norway, the latter producing some 99% of its domestic electricity requirements from hydropower. Geothermal energy is a significant source in Iceland (56.0%), Costa Rica (24.4%), the Philippines (21.3%), El Salvador (19.4%) and New Zealand (12.8%). Solar energy is becoming significant in Israel (2.95%), Jordan (1.27%), Peru (0.45%), Turkey (0.4%) and Greece (0.35%). Denmark (1.87%), Germany (0.26%) and Greece (0.23%) are leading the way in wind energy capture.

Apparent in all this is the role that China (currently no. 2) and India (currently no. 4) will play in terms of future global energy demand, which is predicted to rise by as much as 50 per cent by 2030. With their massive populations (together comprising 37 per cent of the current world's population) and growing economies, both countries have been examining how they are going to meet the anticipated growth in their energy demand. Currently China draws 78.6% of its energy requirements from fossil fuels, 18.8% (solid biomass), 0.4% (nuclear), 2.1% (hydroelectricity) and 0.1% (other renewables). Similarly for India the statistics are 59.3% (fossil fuels), 38.5% (solid biomass), 0.9% (nuclear) and 1.2% (hydroelectricity). But the car industry in both countries is rapidly expanding, as are their industrial sectors and urban lifestyle demands. Transportation fuels consumption in China is projected to quadruple by 2015.

The Chinese National Development and Reform Commission (NDRC) has been looking at ways to increase the use of alternative fuels, in particular solar, biomass and hydroelectricity. Its report will be discussed at the annual session of the National People's Congress Supreme Legislature in March 2006 and its recommendations will become part of the 11th Five-Year Plan (2006-2010). With the controversial Three Gorges Dam on the Yangzte River, China has the world's largest hydroelectric facility. Already producing electricity, it will be able to generate 84.7 billion kwh of hydro-electric power annually when it is completed in 2009. Other dam projects are in planning and construction, however they continue to be the subject of criticism from environmentalists, neighbouring countries and from those displaced by the projects. China is also spending some US$15bil on new coal liquefaction plants; has a rapidly growing LNG demand; it is pursuing ethanol production from biomass for vehicle fuel and at the end of 2004 claimed that its solar production already accounted for 40 per cent of the global total.

India currently imports almost 75 per cent of its energy with demand expected to double in the next five years. Its oil agencies are looking to acquire energy assets overseas to secure future supplies; and India has been involved in talks with Iran and Pakistan to explore the possibility of building a natural gas pipeline from Iran. Currently the government subsidises oil products used by consumers - over 80 per cent of people use kerosene for cooking and heating - a policy which though politically necessary is draining of government coffers.

On the environmental front, both China and India acknowledge their dependence on fossil fuels at least in the foreseeable future. They along with the US, Japan, South Korea and Australia - the six nations (all major coal producers-users-exporters) said to produce some 50 per cent of the world's human-induced greenhouse gas emissions - met in Sydney on 11-12 January 2006 to launch the Asia-Pacific Partnership on Clean Development. This partnership (announced at the ASEAN Regional Forum meeting in Vientiane on 28 July 2005) is aimed at developing clean energy technologies, including carbon capture and storage, which could then be transferred to developing countries. This is proposed as a 'complement' to the Kyoto Protocol on climate change, which neither the US nor Australia has ratified. Critics however point out that this agreement includes no binding targets or timetable to achieve greenhouse gas emission reduction targets. Furthermore, though it is claimed that this 'could lead to partners' emissions being 30 per cent less in 2050 than would have otherwise been the case', even with successful implementation of the projected new technologies global emissions are still projected to double by 2050.

Clearly the challenges are immense and it is unlikely that there will be a single solution that will satisfy every nation's requirements and capacity. What is changing though is the old sense of complacency that we can go on doing as we have until now.

WATCHPOINT: Once an 'appetite' for energy is 'established', it becomes much more difficult to curb the 'hunger pangs' through a change of mindset and lifestyle, energy efficiencies and alternative technologies. Not only is this problematic for the developed world, it is already a reality being faced by developing countries such as China and India.


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AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.

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