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Indian Demand For Hydrocarbons to Increase 40% Over the Next 10 Years

November 01, 2010 | About:
CanadianValue

CanadianValue

212 followers


I found the article below this morning which details a message from the Indian Premier on the need for India to secure sufficient oil, gas and coal resources to feed its rapidly growing economy.

The article which is about Indian oil demand struck me as particularly interesting today after having written this weekend about the plateau and decline in global oil production expected by Warren Buffett and Charlie Munger:

http://www.gurufocus.com/news.php?id=111016

On one hand we have relentless growth in oil demand from China, India and the Middle East. On the other hand we have pretty much hit our limit on the amount of oil that can be produced per day. It doesn’t take a genius to figure out what happens when both sides of the equation are pushing in the same direction.

In 2003 Prem Watsa of Fairfax Financial started warning about the overleveraging of the United States and a bubble in housing prices that would at some point pop. The idea of a housing bubble became more mainstream in the years following his early warnings, but since we had never experienced a decline in housing prices most people ignored the warnings.

I find the warnings of a fairly near term peak in daily oil production fairly similar. Around 2000 there were voices in the fringe trying to draw attention. And over the past 10 years as oil has gone from $20 a barrel to $83 today more people are acknowledging what the world is facing.

And while a pending plateau or peak in daily oil production is acknowledged by many, very few are doing anything about it. The one player who is doing something is China who locks up hundreds of millions of dollars of oil reserves seemingly every month around the globe.

I was aware of Prem Watsa and his warning on the overleveraged financial system and was able to escape the 2008 stock market collapse with no permanent loss of capital (although certainly some painful swings in paper value of my holdings) by steering clear of the financial sector. This time, with respect to a peak in oil production, I am determined to not just minimize damage but also profit.

Enjoy the article on Indian oil demand and head to my blog or prior gurufocus.com articles for some investment ideas (and make sure to do your own work):

http://news.yahoo.com/s/afp/20101101/sc_afp/indiaenergyoilpolitics

NEW DELHI (AFP) – Premier Manmohan Singh told India's energy firms on Monday to scour the globe for fuel supplies as he warned the country's demand for fossil fuels is set to soar 40 percent over the next decade.

The country of more than 1.1 billion people already imports nearly 80 percent of its crude oil to fuel an economy that is expected to grow 8.5 percent this year and at least nine percent next year.

Demand for hydrocarbons -- petroleum, coal, natural gas -- "over the next 10 years will increase by over 40 percent," Singh told an energy conference in New Delhi.

"India needs adequate supplies of energy at affordable prices to meet the demand of its rapidly growing economy," he said, as rising Indian incomes spur industrial demand and more people buy energy-guzzling cars and appliances.

Singh's call comes as India is locked in a race with emerging market rival China for fuel supplies to feed their booming economies in which analysts say Beijing has taken a strong lead.

India faces "immense competition from China which has been far quicker to react when an asset becomes available," Kalpana Jain, senior director of global consultancy Deloitte, told AFP.

Most of India's fuel demand must be met from imports as the increase in supply from domestic maturing oil fields is expected to be just 12 percent over the next 10 years, Singh said.

The government is "encouraging national oil companies to pursue equity in oil and gas opportunities overseas," he said, adding "hydrocarbons will continue to be our major source of energy for quite some time."

"We seek to build strong economic partnerships with other countries and their oil and gas industries to the mutual benefit of each other," he said.

At the same time, Singh said because of climate change there needs to be a "rethink on the traditional energy basket which is presently loaded in favour of (global-warming) fossil fuels."

India is expected to put forward a new model on curbing carbon dioxide emissions among countries at UN global climate talks to be held in Mexican resort Cancun in December.

Singh's statements came as state-run Oil and Natural Gas Corp (ONGC), India biggest oil explorer, said it was looking at a "proposal" by investment bankers to buy a stake in an Angolan oil field held by energy giant ExxonMobil.

"We are examining one such opportunity," said R.S. Butola, managing director of ONGC's overseas arm which heads the drive to secure energy supplies.

India was "definitely interested" but added it remained to seen if Exxon wanted to dispose of the stake, he told reporters.

The Economic Times newspaper earlier said the 25-percent stake could be worth up to two billion dollars.

India has been struggling to catch up with China in the race for fuel in Africa, Latin America and elsewhere. Everywhere, China -- with its deep pockets and energetic diplomacy -- has been beating bureaucratic India to the punch in the quest to lock in long-term supplies abroad, analysts say.

In October, leading Chinese refiner Sinopec acquired a 40 percent stake in the Brazilian branch of Spanish energy company Repsol.

India may be luckier if it seeks to buy the Angolan stake.

Angola has said it would favour a joint approach by an Indian national oil company with the African nation's state-owned firm Sonangol, the Press Trust of India reported.

"India needs quick decision-making. China is here to stay and they are here to go after the same assets," said Deloitte's Jain.

About the author:

CanadianValue
http://valueinvestorcanada.blogspot.com/

Rating: 4.3/5 (8 votes)

Comments

razorfangius
Razorfangius - 4 years ago
India is a day late and a rupee short (as is the US, for that matter).

China has learned way too much from Lee Kuan Yew and is going to eat everybody's lunch.
Jonathan Poland
Jonathan Poland - 4 years ago
As the US decreases its demand (supposedly), the rest of the world will up theres. Charlie Munger seems to feel that oil will be down in 25 years, and only time will tell. In the short term (less than 25 years) the demand will rise, supply has a high probability of shrinking, and we all know the end to that economics lesson... rising prices. Of course, inflating the money supply will help it rise in "dollars" but it may still be cheap in RMB or Rupees.

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