Two major events happening at two ends of the world – Japan’s natural disaster and its nuclear fallout and the unrest in Libya and other countries of the region – have one thing in common: energy. The fallout at the Fukushima Daiichi nuclear plant, which was hit by an earthquake and a tsunami, has not yet been contained. It is not clear how Fukushima’s problems will be buried.
This nuclear accident has stopped – even if temporarily – the resurgence of the nuclear industry. Italy only recently restarted its nuclear programme after a post-Chernobyl referendum had ordered a shutdown of its working plants. It has now called for a one-year moratorium on the four proposed nuclear reactors. Both the US and China remain wedded to nuclear energy, but have slowed developments and suspended future expansions. Europe has called for a safety review of its 143 plants. All this clearly indicates that the world will rethink its projects and tighten safety procedures and requirements, which, in turn, will add to costs. The nuclear industry’s renaissance may not be stillborn but is certainly delayed. Clearly, this will put pressure on global energy supplies.
At the same time, the violent conflict unfolding in West Asia and North Africa has led to oil prices peaking over $105 per barrel — some 24 per cent up from February 15. Again, there is uncertainty about where this conflict could go. The outcome of the North Atlantic Treaty Organisation-led air strike on Libya is unclear. Will it succeed in stopping Colonel Gaddafi or end up dividing the country into two parts? There is no real plan about when this will end. Yemen is falling apart, and even though it is a small oil producer, it is strategically located at the Gulf of Aden. Bahrain, a major oil producer, is edging towards collapse. The zone of unrest is growing. The world is too scared to exhale.
The question is: what will this do to the already precarious energy situation in the world? The recent recovery of the world economy has driven up demand at a time when oil production is stretched and even perturbation can raise oil prices. In the coming months, Japan will fuel this demand further — its 54 nuclear reactors met 30 per cent of its energy needs. Now, many are closed and in the coming months, the post-earthquake recovery will need more energy. It will be in the market to import more natural gas. This will put a strain on the European oil and gas market, which has common buyers. Gas futures in Europe have already risen. All this will, of course, mean more revenue and global influence for oil and gas exporters like Russia.
This comes at a time when new oil fields have been difficult to find. Oil is now being found in areas that are ecologically fragile and also where man is finding it difficult to go, like deep sea where BP met with its accident. That’s not to say the oil-addicted world is not trying.
There is a mad rush for the Arctic now. Ironically, because of climate change, caused by the use of fossil fuels, the Arctic melting has left the region open to more oil exploration. Countries are vying to get into the Arctic quickly to begin drilling, irrespective of the environmental consequences.
The other big find is shale gas in the US. Oil companies are using hydraulic fracturing, or fracking, at a high pressure to unlock the gas trapped in shale rock formations deep underground. Now other parts of the world are busy looking for shale in their territory. It is hard to say how much of this is available and at what cost.
But the bottom line is that energy constraints on the world’s emerging economies will grow. We know that the price of energy determines the price of growth.
India will need to work out its own energy options. There is no doubt that we need more energy — large parts of the country remain deprived of this basic need, which is unacceptable. It is also clear that our options are limited. We already import huge amounts of oil and gas and will need more in the future, particularly because we seem to be unclear about how much gas reserves we have. Also, we don’t really have a plan on how we should use energy more efficiently and wisely. We only want to dig deep into forested regions for cheap coal.
Clearly, energy is the world’s Achilles heel. But we will not get anywhere if we keep harping on the old answers. We need to secure energy sources, but equally we need to find new ways of doing much more with much less. It is time we learnt this lesson. Fast.
