World Pipelines - March 2020

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OPEC has forecast rapid long-term growth for both the
Indian population and economy. Rising from 1.35 billion
in 2018 to nearly 1.6 billion in 2040, India’s population is
expected to exceed China’s by approximately 2030 to
become the world’s largest. Over the 2018 - 2040 period,
OPEC sees the Indian economy growing by an average 6.3%
per year, nearly double the world’s annual 3.3% rate.
These trends underline India’s worsening energy
insecurity. Any significant disruption in oil supply will
threaten the economy. This lesson was driven home by the
14 September 2019 drone attacks on two major oilfields in
Saudi Arabia, that cut off more than 5% of the world’s oil
production for several weeks.
According to consulting firm Wood Mackenzie, India,
among Asia’s major economies, was ‘the most exposed’ to
an oil shock had the loss of Saudi oil been sustained for
months. The Indian government was alarmed when oil prices
surged nearly 20% within a day of the attack. It has increased
pressure on India to join in international efforts to help in
military and naval patrols, as well as take a political role in
securing peace in the Middle East, which holds nearly half
the world’s oil reserves.
Importers to grow at faster rate than
exporters
For the first time this century, the economies of the oil
importing and gas importing nations of the Caucasus and
Central Asia region will grow at a faster rate than those of its
energy exporters, predicts the International Monetary Fund
(IMF).
In its latest survey of the region, the IMF said it expects
the combined economies of the energy-importing bloc
comprising Armenia, Georgia, the Kyrgyz Republic, and
Tajikistan to grow by an average rate of 4.7% per year
between 2019 and 2024.
This will be slightly faster than the combined average
growth of 4.4% to 4.5% per year projected for the oil
and gas exporting economies of Azerbaijan, Kazakhstan,
Turkmenistan, and Uzbekistan.
The IMF cited three reasons for the energy importers’
superior performance: their capacity to undertake fiscal
expansion; the weak outlook for energy prices; and their
lower dependence on China’s slowing economy.
The energy importers have more diversified economies,
giving them more room for deficit spending. With oil and
gas prices expected to hold steady in the coming years,
the region’s energy exporters will have little capacity to
boost domestic spending. China’s slowing economy will also
weigh negatively on the energy exporters, who have been
increasingly dependent on oil and gas sales to the country.
Regional bloc maps out energy strategy
Ministers from Central Asia, the Caucasus, and four
neighbouring countries recently endorsed a long-term
strategy to improve the region’s energy security, in order to
enhance its investment potential and economic outlook.
The landmark agreement was signed at the 18th Central
Asia Regional Economic Co-operation (CAREC) ministerial
summit held in Tashkent, the capital of Uzbekistan, in
November 2019. The strategy is a direct response to
challenges facing the region’s energy sector, said the Asian
Development Bank (ADB), which established the programme
in 1997. The region’s growing economies need approximately
US$400 billion in investments by 2030 to meet increasing
demand for power.
CAREC aims to promote economic co-operation among
countries in the region, many of whom experienced decline
and political turbulence following the collapse of the former
Soviet Union in 1991. Seven of the programme’s members are
former Soviet states: Azerbaijan, Georgia, Kazakhstan, Kyrgyz
Republic, Tajikistan, Turkmenistan, and Uzbekistan. The other
members are Afghanistan, China, Mongolia, and Pakistan.
“CAREC Energy Strategy 2030 outlines a set of initiatives
and policy recommendations to be implemented over the
next decade based on regional co-operation, embracing
energy market reforms, and deploying more green
technology,” the ADB said.
“CAREC countries are rich in natural resources, but
uneven distribution of these resources – compounded by
inadequate infrastructure and inefficient energy utilities –
means some countries continue to face power shortages,”
added the ADB.
Excluding China, the region’s economies grew by a
collective 4.9% in 2018, up from 4.6% in 2017, due largely
to state-driven investments in Azerbaijan, Pakistan, and
Uzbekistan. However, growth is expected to have slowed
to 3.9% in 2019, partly on account of a slowdown in oil
production in Kazakhstan, the largest of the former Soviet
states.
Azerbaijan
Azerbaijan is bracing for the loss of vital US investment in its
fragile economy following Chevron’s exit from the country’s
oil industry, that could soon be followed by ExxonMobil.
The two US majors have helped to develop the Central
Asian country’s oil reserves over the past 25 years. Along
with other foreign oil companies, Chevron and ExxonMobil
have pumped billions of dollars into Azerbaijan, enabling its
economy to survive tough times following independence in
1991.
ExxonMobil is now trying to offload its 6.8% stake in the
Azeri-Chirag-Gunashli (ACG) field in the Caspian Sea, after
Chevron sold off its assets to Hungarian energy firm MOL in
early November 2019 for a total of US$1.57 billion. Chevron
sold both its 9.57% stake in the ACG field, and an 8.9%
shareholding in the 1800 km Baku-Tbilisi-Ceyhan pipeline
that delivers the crude to the Mediterranean. The two majors
represented almost all of the US’s investments in Azerbaijan.
The ACG field is one of the world’s largest offshore
oilfields, with recoverable reserves estimated at 3 billion bbls.
The BP-operated field, which started up in 1997, produced an
average 584 000 bpd in 2018, according to MOL.
16 World Pipelines / MARCH 2020