When Asian energy ministers met in Tokyo earlier this week, price volatility appeared to take center stage and the onus was on preventing speculation. The meeting seconded brewing concerns by crude producers about the role of speculators in the already chaotic oil markets and lack of investments in new capacity. It was important to maintain a system that ensured stable crude supply in the medium to longer-term. Asian producers and consumers concurred.
Consequently greater oversight of oil and other commodity markets was urged. Participants in the Tokyo meeting sought limits on positions in over-the-counter trades underlining “excessive” oil-price movements as “undesirable.” They also called for “continuous” investments to boost energy supplies.
“We will take actions to avoid any excessive volatility in commodity futures, and Japan will look into what measures are appropriate,” Japanese Trade Minister Toshihiro Nikai underlined at the press briefing, urging the oil producing and consuming countries to “join forces” to tackle “supply issues” that may emerge once the global economy recovered from the downturn.
Greater oversight of over-the-counter trading is but a challenging job.
“I doubt each government of OPEC and Asian countries is able to look into each oil and commodities contract done by banks, traders and speculators, including sovereign wealth funds,” Ken Hasegawa, a Tokyo-based commodity derivatives sales manager at Newedge, was quoted as pointing out — and he definitely had a point.
OPEC has been vocal about the very issue. In January it unveiled a plan seeking regulations to cap speculative trading by investors who buy oil without planning to use it. In February, the US House Agriculture Committee also approved legislation that would place limits on positions a trader can hold in commodity markets as the US government sought to exercise some control over derivatives. At present, such limits on speculative positions exist only for agricultural products. The bill would also enhance the US Commodity Futures Trading Commission’s oversight of credit-default swaps.
Investments, severely hit in the circumstances, were also under the hammer. OPEC members have delayed 35 drilling projects, Secretary General Abdalla Salem El-Badri has been recently quoted as saying.
Falling investment “is of great concern, notably for energy-sector projects adversely affected by oil price volatility and lower demand for oil, when long-range commitments of adequate and timely investment flows are needed to ensure future supply,” Saudi Arabia’s Minister of petroleum and mineral resources Ali Al-Naimi underlined at the Tokyo meet.
Interestingly the Asian circuit got together amid a rapid shift in the balance of power, at least in the energy world, if not others. Asia depends on the energy-rich Middle East for more than three-quarters of its oil, a figure unlikely to ease soon given its tiny reserves. And Gulf producers also depend on Asia to buy more than two-thirds of their oil.
Despite all the talks of alternative fuel, the fact remains that the crude requirement of major Asian consumers China, Japan, Korea, Turkey, India, Pakistan and others in the region would continue to be met by imported fossil fuel and that too from the nearby Gulf. This dependence could go a long way in meeting the issue of “demand security” that the producers have now been clamoring toward for some time.
Western consumers, despite understanding the crucial nature of the issue, seem not much interested in meeting this specific demand of the producers, rather continue to emphasize on limiting their exposure to the “unstable” Middle East for its needs.
For some time now, the center of gravity of energy issues has moved east toward the most populated region in the world. Qatar’s Oil Minister Abdulla Bin Hamad Al-Attiyah acknowledged: “It is only natural to seek organizing the Asian energy scene through increased transparency and cooperation in every field where our assets complement each other.”
Already, two-thirds of the oil extracted from the bowels of West Asia and Southeast Asia finds its way to the markets of Turkey, India, China, Korea, Japan, Pakistan and other consumption centers in Asia.
This provides the ideal basis for an Asian grid. When the ever-ebullient Indian diplomat-turned-politician Mani Shaker Aiyer apparently floated the very idea it was basically in view of the above dependence on each other. The destiny and the future of major Asian players in the circuit — both consumers and producers were — tied to each other to a great extent. The key words then were “security, stability and sustainability”. The discussions then revived the plan for an oil and gas grid for the Asian continent, as part of a two-fold strategy to ensure reliable delivery networks and energy security.
In the hullabaloo of the day-to-day problems that Asia was faced with, however, the very idea of an Asian energy grid appears a major casualty. The issue of an Asian energy identity seems more today a hostage to geo-political considerations than the mutual dependence. One doesn’t need to go too far on the front — the fate of the IPI is a glaring example before our eyes.
With realpolitik taking over, the issue of Asian energy identity unfortunately seems pushed to the sidelines — at least for the time being.
