This Energy Surge Could Trigger an $11.7 Trillion Shopping Spree
Don’t let the “normal” lull in oil prices fool you. A major spike in demand is now shaping up again in Asia.
This time, however, China won’t be the only one driving the trend.
According to a recent report by the Manila-based Asian Development Bank (ADB), the entire Asian region will likely experience major challenges in securing enough oil to meets its requirements through 2035.
So how big are these projected needs?
It’s an amount the bank dramatically suggests “is equivalent to the current oil production of the Middle East.”
To secure it, the ADB recommends that Asian countries will have to accelerate upstream purchases in other parts of the world.
The price tag for these acquisitions, the bank suggests, could reach as high $11.7 trillion.
That is going to provide us with some fantastic investment opportunities…
The Coming Asian Energy Surge
Entitled the “Energy Outlook for Asia and the Pacific,” the ADB report reaches a sobering conclusion. Despite some rather impressive advances in efficient power generation, especially in China, the need for crude oil in Asia will be soaring along with its other energy demands.
The 543-page report is direct in its estimates. And the truth is, the need for imports will be rising whether Asian companies control a percentage of the outside production or not.
Despite efforts to use more clean energy, the ADB reports that the fossil fuels share of the Asian and Pacific energy mix will rise to 82.4 % by 2035.
Per the report, oil use will jump 1.9% yearly from an already large base, and gas usage will rise some 3.9% a year. Meanwhile, Asian coal usage is projected to climb by 1.7% annually – even though China’s coal use is projected to post the slowest increase in decades, growing only 1.4% annually. Beijing is indicating it’s serious about moving away from coal to natural gas (especially domestic unconventional shale).
Citing that global oil flows are already starting to be redirected due to increasing North American crude-oil output, the bank also observes there are strong indications that more oil from both the Atlantic basin and the Middle East is now available in Asia.
That flow will be rapidly intensifying as the huge scale of future Asian demand kicks in, and this will have important financial implications for the region and the global oil supply-demand balance.
Oil-deficient Asia, already heavily dependent on imports to meet its needs, will see its net imports of crude oil and refined products soar to 25.7 million barrels a day in 2035, from 15.5 million barrels a day in 2010, the ADB said.
“The size of Asia and the Pacific’s oil-import needs implies that it might be a challenge to find and secure stable and affordable oil supply sources externally,” the bank said.
Nonetheless, you can be certain there will be a substantial move abroad to do just that.
$11.7 Trillion = A Huge Opportunity
Of course it is difficult at this point to put a firm dollar figure on what this means.
But in one regard the report’s conclusions are clear. The needs of the entire Asian and Pacific region will require a massive ($11.7 trillion) cumulative investment at home and abroad in upstream energy extraction and production, midstream energy transformation, transportation, and downstream energy distribution.
Chinese state-controlled oil interests have been doing just that for years, with major company and field purchases in places like Canada, Kazakhstan, Mozambique, Venezuela, and North Africa. Urged on by the lack of domestic hydrocarbon reserves, Japanese majors have also been moving into other parts of the world.
In addition, India has been searching for foreign project positions to offset a significantly rising supply shortfall at home. But now the move into upstream assets abroad has become a high priority in Malaysia, Viet Nam, and even Indonesia.
The problem is not simply in locating the crude oil and natural gas necessary. To meet rising domestic demand, massive developments of midstream, processing, storage, distribution, and quality control are essential. That combined with expansion of electricity generation and grid networks, will add to the price tag even more.
From an environmental standpoint, however, there is also a major downside.
The ADB report cites an expected rise in greenhouse gas emissions. If there are no major policy initiatives, the bank notes, carbon dioxide emissions in Asia and the Pacific are expected to increase by about 2% a year through 2035.
This collision of demand intensification with limited access to cleaner fuels accounting for a higher percentage of the energy mix is also not good news for the wider picture. Already faced with major technical challenges to meet goals set for 2020, the energy crunch in Asia places another roadblock before the United Nation’s initiative to reach a binding climate agreement by 2015.
In all of this, two elements are enticing from an investor standpoint.
The first is the likelihood that more Western companies will become takeover targets, always an attractive prospect to maximize return on investments in those companies.
The second, on the other hand, is even more promising. To meet the range of problems, Asia will require a full complement of technology, expertise, and logistics.
Much of that will be provided by outside companies. And we intend to ride that wave to the bank.
PS. Here’s the scoop on an overseas oil find that’s almost 4 times bigger than the $11.7 trillion that Asia is about to spend. Here’s the key: Every drop of oil it produces hinges on a small Western company that is about to go ballistic. I have all the details right here.