Thursday, 11 June 2015

Implications of the US becoming the largest energy producer

The United States that surpassed Saudi Arabia in oil production has now beaten Russia in oil and gas production, thanks to the fields falling in the category of shale.

According to a report released by BP on Wednesday, U.S. oil production rose to a record last year, gaining 1.6 million barrels a day. Gas output also climbed, putting the United States ahead of Russia as a producer of the hydrocarbons combined.

The data confirming emergence of the U.S. as the top driller also endorses a trend that has helped the largest economy of the world reduce imports, caused a slump in global energy prices and shifted the foreign policy priorities of the country.

The world is witnessing a changing of the guard of global energy suppliers and the implications of the shale revolution in the U.S. are profound, this was stated Spencer Dale, Chief Economist of BP.

The other major shift BP report shows is that energy demand in China is growing at the slowest pace since the Asian financial crisis of the late 1990s as the economy slows and the country tries to reduce its reliance on heavy industry.

The boom in oil and gas production in the U.S. has started to change the domestic economy profoundly. Cheap fuel has seen manufacturing return to the U.S. as the country produced about 90 percent of the energy it consumed last year.

Last year, energy imports by the U.S. equaled one percent of GDP, of the country. In 2007, prior to the commencement of the financial crisis, energy imports by the U.S. accounted for about half of the current account deficit of 5 percent of GDP.

Shale drillers from Exxon-Mobil to Chesapeake Energy have spent about US$120 billion last year in the U.S., more than double the amount five years earlier. The surge in output and a slowdown in global demand have pushed crude oil prices down about 40 percent in the recent past.

The lower prices will force some producers to shut in “frothy activity” at some shale fields in the U.S. but most output can work even at current prices. The number of rigs drilling in shale fields are down by half from an October 2014 peak and may stabilize by the end of the summer, says BP Report.

The shale revolution hasn’t run out of steam in the U.S. as the country increased oil output last year, helping it to overtake Saudi Arabia as a crude producer. This was the first time a country has raised production by at least one million barrels a day for three consecutive years.

Among other producers outside the Organization of Petroleum Exporting Countries (OPEC), Canada and Brazil also reported record production last year, prompting OPEC’s policy shift of ditching price support for defending market share.

On the demand side, countries outside the Organization of Economic Cooperation and Development (OECD) accounted for all of the net growth in global consumption of 0.8 million barrels a day, or 0.8 percent, last year. Chinese consumption growth, though slower, still jumped 390,000 barrels a day, the biggest increase in the world.
Tail Piece: Having achieved self sufficiency in energy products is likely to shift the U.S. focus away from Middle East and MENA to South China Sea. This may not be a good omen for the region as some other countries may try to declare themselves regional super powers, the mostly likely being Iran and India.


Friday, 5 June 2015

Why CPEC has become a nightmare for Modi?

The world in general and Pakistanis in particular fail to understand the vehement opposition of China Pakistan Economic Corridor (CPEC) by Indian Prime Minister Narendra Modi. The level of insanity is also evident from the dictating tone in which he is addressing the Chinese government. Therefore, there is need to understand his level of anxiety.

Indian External Affairs Minister, Sushma Swaraj has said that India strongly opposes US$46 billion CPEC project. Addressing a press conference she said that during his visit to China, Indian Prime Minister Modi had raised "very strongly" the issue of the CPEC to Beijing and told them that it was "unacceptable" for India.

Modi’s prime objection is that CPEC will pass through Pakistan occupied Kashmir, which is not the real issue. He knows it very well that if CPEC becomes fully operative, importance of Chabahar port, which India is building in Iran will diminish drastically. It is known to all that Pakistan offers the shortest and the most cost efficient route to Central Asia passing through Afghanistan.

Ever since Pakistan started construction of Gwadar port and particularly after its management was transferred to China, India has been spreading disinformation that China is building a naval base under the disguise of a civil commercial port.

The fact is that CPEC is a development megaproject aimed at connecting Gwadar Port in southwestern Pakistan to China’s northwestern autonomous region of Xinjiang, via a network of highways, railways and pipelines to transport oil and gas as well as other goods. The economic corridor is considered the focal point of China Pakistan relations and will run about 3,000 km from Gwadar to Kashgar. The 3,000 kilometer corridor is an extension of China’s proposed 21st century Silk Road initiative.

The project will also open trade routes for Western China and provide China direct access to the resource-rich Middle East region, bypassing longer logistical routes currently through the Strait of Malacca. According to The Guardian, "The Chinese are not just offering to build much-needed infrastructure but also make Pakistan a key partner in its grand economic and strategic ambitions."

CPEC is a paradigm shift toward greater economic cooperation between Pakistan and China, which have long had close security ties amid common disputes with neighboring India. The corridor would give China access to the Indian Ocean and lead to investments that would help ease power shortages that are hindering economic growth in Pakistan.

India wants to sabotage CPEC at any cost, even to the extent of taking advantage of various insurgent groups operating in Pakistan, the most notorious being those having bases in Southern Punjab and Baluchistan. It is often alleged that RAW and Mousad are involved in proving funds, arms and training to certain group, the most notorious being Jundullah.

Modi knows well that if China bound goods are passing through Pakistan, special care will be taken by both the governments to ensure safety and security of the goods. In such a scenario agents funded by Israel and India may find it difficult to continue supporting insurgent groups in Baluchistan.

It is also necessary to remind the incumbent government that it has not been able to tell the public the route, which provides opportunities to those having vested interest to spread disinformation. At present at least maps of four different routes are in circulation, which provide ample opportunities to the groups having vested interest to initiate unnecessary debate and arouse anti Pakistan sentiments.