The unusually stark warning by Fatih Birol, chief economist, International Energy Agency (IEA), about the impact of Asia’s emerging giants comes as IEA prepares to issue its influential annual report, which will focus on China and India.

In preparing the report, Birol said he experienced “an earthquake” in his thinking. “China plus India are going to dominate growth in the oil markets,” he said. During the past 18 months, he noted, more than two-thirds of the growth in global oil demand came from China and India alone. Demand for oil in China, he added, would eventually equal the entire supply from Saudi Arabia.

Partly as a result, he added, the annual report would predict that oil prices, now at about $93 a barrel, could remain at levels much higher than thought possible in the past.

Birol said China and India could help reduce demand and the environmental impact of their booming energy consumption by introducing greater efficiencies, building up renewable sources of energy, using more nuclear power — and by committing to cutting emissions.

China and India have long resisted calls to cut emissions, saying they need to grow to match developed-world standards of living. They argue that other major emitters of greenhouse gases, like the United States, should lead the way in cutting emissions before poorer and less developed nations bear the same costs.

The debate, which has undermined the Kyoto Protocol, a global treaty on greenhouse gas reductions, is set to resume when nations meet in December in Bali, Indonesia, where the two-year process of negotiating a successor treaty to Kyoto formally gets under way.

Guy Caruso, an administrator at the US Department of Energy, emphasised the need for continuing investment to recover oil from well-established oil-producing sources and countries, where he said the most important supplies would continue to come from in the future.

Much of the growing Chinese and Indian demand for oil is expected to result from burgeoning car ownership. In China now, only about 17 people out of 1,000 people own a car, compared to about 680 people out of every 1,000 in Europe and 860 out of every 1,000 in the US, said Birol.

But last year, Birol noted, the Chinese bought the same number of cars as the Japanese and would buy the same number as Americans within five years time.

He said new cars sold in China are 20 per cent more efficient than those sold in the US, but that efficiency levels still lagged behind Europe.

Demand for energy from China and India is coming at a time when structural changes are under way in global oil markets, reinforcing the view among experts that there will be a period of increasingly tight supplies ahead. Fields in many parts of the world including the North Sea, the US and Russia either have hit a plateau or are in decline.

On the demand side, much was coming from growth in the transportation sector. But with little prospect of fuels that can be substituted for oil in most economies, the most feasible option was to produce more efficient cars, said Birol.

Birol said that developed-world consumers were more willing to pay for higher oil — and to keep on paying those higher prices — because those countries had become more prosperous.

Consumption at current global prices also remained robust in the developing world, he said, because many of those countries use subsidies to keep pump prices down. That means consumers there are slow in reacting to higher oil prices — and that demand will likely continue to accelerate.

China and India alone were paying $15 billion each year in subsidies, out of a total of about $50 billion across all developing countries.

Those subsidies would ensure that demand for oil probably would continue to accelerate in those countries too, he said.

Factors that Birol said could contribute to a global energy crunch included the decline of oil fields, but he added that much more research was needed to ascertain how fast those oil fields were really running out.
He said the next IEA report, in 2008, would seek to provide much more information on the true state of the world’s oil fields.

IHT