Norwegian Business Association (India)

The Energy Outlook in Asia


By Eric Baker, for Thai-Norwegian Chamber of Commerce

Despite proclamations that Norway is rebalancing its economy as global oil prices bottomed out around 45 USD earlier this year, oil and gas are going to continue to play an integral part of the country’s fortunes. But what does the future hold for the industry, and what energy sources will Asia turn to as massive demand is expected to materialise the next few decades?

The 2015 Norway-Asia Business Summit had a panel assembled to mull over those very questions.

“Oil reserves stand at only 4% yet 50% of energy demand is for oil. I don’t think I am exaggerating by stating this is unsustainable,” said Narendra Taneja, the energy advisor for India’s Bharatiya Janata Party (BJP). “But what we are witnessing here is a renewable revolution. The Indian government has committed to produce 175 megawatts in renewable power over the next six to seven years. Some say it is too ambitious, but I say it is a start.”

“India still has 400 million people without power. There are 920 million mobile phones in India, so it is common to see people ride their bicycle to charge their mobiles out in the country. We are looking at every potential energy source, including nuclear. The goal is to become 100% green, but that is easier said than done. The country is also very high on solar, but when people hear nuclear some of them make a face. Well what is solar energy but sunlight fusing energy into solar panels? I am pretty confident that once nuclear fusion becomes 100% safe, this will be a viable energy alternative.

“We also see the potential for 180,000-240,000 MW of hydropower in Nepal and Bhutan. But coal still makes up 68% of India’s power generation, and energy comprises 25% of the country’s GDP. Even though aspirations are high and the middle class wants finer goods and political accountability, for many Indians they can’t afford anything other than coal.

“The BJP is trying to roll out a programme where 400 million Indians get a solar panel the size of a briefcase. It costs 145 USD and you leave it in the sun for three hours and it can power three lamps, a small television and charge a mobile phone. The government and the people will split the cost over five years. The country is also trying to encourage biomass energy, but it does not have enough raw materials for production. We will only be able to move away from a fossil fuel economy gradually.

“India still believes oil will remain the world’s most important fuel for the next 25 to 30 years though. The Arabian Sea will be a key location for the next two decades and one Norwegian companies can look to target with their expertise in oil and gas services.

“The demand for oil is now driven by Asia, not the West. I think India has more oil and natural gas, as the Bay of Mumbai could be rich in resources. Other countries set to perform well in oil and gas are Bangladesh, Myanmar, Pakistan, Oman, Tanzania and Somalia.”

“The oil minister for Saudi Arabia admitted in 1986 the country kept oil prices too high in the past, driving up production demand and weakening consumption,” said Torbjørn Kjus, chief oil economist for DNB Markets. “Oil prices were weak for the next 17 years. Now the situation is different as demand is still there and production is quite high. DNB advised Saudi Arabia not to cut production despite the big drop in prices, and the OPEC leader has vowed to maintain production levels even if the price falls to 20 USD a barrel.”

“Saudi Arabia is a family-run country so the leaders are not worried about a panic from low oil prices because their power is entrenched. Their goal is to price others out of the market, and indeed the most expensive resources are being pushed out. We are seeing enormous cuts in global oil investments, which is going to hurt Norwegian expertise companies. Saudi Arabia wants oil to remain cheap so the oil age lasts longer.

“The cost to produce shale oil has fallen 30-40% in recent years, but Norway needs a high enough oil price in non-OPEC countries for non-shale oil production to continue. Offshore production costs are down 25% in the US. Global oil demand is mainly coming from oil-subsidising countries.

“Our outlook is the oil price will average 68-70 USD over the next 12 months. There are enormous negative factors in the system right now, and I don’t believe the price will hit 100 USD again for a long time. The new normal will be in the 60-80 USD range as production dips, there is vast spare capacity, and big drops in investment in Arctic areas, deep-sea drilling, Canada’s oil sands and some of the more exotic shale oil methods.”

“This is the gas century and the centre of gravity is in Asia,” said Hilde Merete Nafstad, president of Statoil Asia Pacific. “Even by 2040, oil and gas will still make up over 50% of global energy use; it is not realistic to expect otherwise. We are trying to be as efficient as possible, but unfortunately coal is making a comeback, even in Europe, because it is so cheap. We also want to have a foothold in renewable energy going forward and are a joint partner in a giant windmill project that is placed in a remote area where it will not affect people or birds, yet there are very powerful winds.”

“In India we say ‘let the elephant enter the forest first’, and there’s a little bit of that going on in the oil industry. Still two-thirds of Statoil’s production comes from Norway, and this will continue to be the backbone of our production. We produce 600,000 barrels of oil per day in Norway and 200,000 barrels of shale oil. The company would like to expand through the value chain and become a producer in Asia. India is not on the radar at this time, but Tanzania has had some great discoveries in natural gas lately.”

Sanjay Joshi, the managing director for Aker Solutions in India, made a plea for Norwegian companies to head there.

“There is huge potential in India because 80% of the gas fields have not been explored,” said Mr Joshi. “Norway has the pipeline infrastructure, shuttle services and regasification that India definitely needs. If a company would take the risk, this is a great opportunity. My suggestion would be to focus on gas because no one is talking about natural gas prices. Norway has the technical expertise to help out in India.”

As for other power sources, Mr Taneja noted that in one stretch of India in the Himalayas, about 50 to 60 dams are planned. “The locals hate it and are protesting like mad. They say it is going to ruin their lives,” he said.

“Hydropower has to be sustainable,” said Tima Iyer Utne, senior vice-president of international hydropower for Statkraft AS International. “A great percentage of building a dam is consultation — you have to talk with the locals. Unfortunately many hydropower developers in Asia are not consulting, including for projects in China, India, Myanmar and Laos, which is going to make their jobs that much more difficult.”

“This gives the industry a bad reputation. The Himachal Pradesh government needs to deal with the locals and set up meetings. Dealing with non-governmental organisations is about being open, telling a story. You need to be ready for criticism.”

 

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