The New Sources of Global Energy Insecurity

Traditional sources of energy insecurity, stemming from supply and demand conditions, speculation, market dependence, political instability, diversity of supply sources and other factors are widely discussed in the energy security literature (see for example IEA, 2007;

Toman, 2002; Jenny, 2007; Scheepers et al., 2007; Jansen et al., 2004; Awerbuch, 2006; Frondel and Schmidt, 2008; Grubb et al., 2006). But long-term structural changes are introducing a new dynamics in the global energy market. One such factor is a structural shift in the origin of global growth. The global economy is growing, largely due to strong performance in emerging economies and growth in BRIC⁸ economies. The growth rate projection from 2008 through 2035 (see Fig. 20) demonstrates robust global economy uptake over the next three decades.

Africa is peaking, at what seems to be a conservative growth projection of 3.7%. The Middle East at 3.8%, Central and South America at 3% and much of Asia at 4.5%, among others, the global economy is in an expansion mode, increasing the global demand for energy commodities, particularly hydrocarbons.

Dominant growth prospects are expected in China, India, Brazil and Russia (BRICs) (see Fig. 20). Except for Russia (projected to grow at 2.6% through 2035), the BIRC countries are projected to experience 4.6% plus growth rates till the mid 2030s. Global growth is accompanied by a rise in income per capita. Personal incomes, particularly in Russia and Brazil, and also in China are expected to increase quite sharply, 2-5 times by 2017 from levels in 2000 (see Fig. 21). Growth in GDP and personal income will put added pressure on energy markets, with likely price response in the short-term, when new supplies are limited. The impact of BRICs on global energy market volatility and oil equity returns depends on the extent that BRICs are net importers or exporters of oil (Bhar and Nikolova, 2009). While the degree if impact

8 BRIC is reference to Brazil, Russia, India and China, fast growing countries in the global economy.

-100

23

1980 1985 1990 1995 2000 2005 2010 2015

China Brazil India Russia

depends on net import, export position, Chousa, et al. (2008) find that the rapid economic growth will increase energy consumption, caused by increases in investment, population and trade in energy intensive products.

Figure 20: Projected growth: 2008-2035. Figure 21: GDP per capita in BRICs: 1980-2017.

Source: Based on data from US EIA, International Source: Based on IMF, World Economic Outlook data.

Energy Outlook, 2011.

While Bhar and Nikolova (2009) advice that the impact of BRICs on global energy prices is dependent on their net trading position. All indications are that BRICs are increasing their presence in global energy markets. The total import bill for China, India and Brazil (Russia is net exporter of energy) from 2000-2012 reveals that their oil import bill increased by 54%, 215% and 164%, respectively, between 2000-2005. In the 2006-2012 period, the oil import bill of China, India and Brazil further grew by 146%, 183% and 192%, respectively. This rapid surge in oil imports is projected to increase rapidly in the foreseeable future (see Fig. 22), increasing the competition for existing oil supplies and contracts, putting upward pressure in energy commodity prices in the futures market, and putting an upward pressure on short-term energy prices, impacting the global energy security, particularly in the context of developing countries likely to be exposed to rising energy import bills, drawing resources that could have been used for other productive activities.

Figure 22: Oil import bills of Brazil, China and India (in billion US$US$).

Note: Russia has no oil imports, and is net energy exporter.

China, 5.7%

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Brazil China India

24 1.4.3 Energy Security in Eastern Africa

In the Eastern Africa sub-region, the economic resurgence of member states has given optimism to economic transformation in the region. The fast growth of Rwanda and Ethiopia, and good economic performance in Kenya, Uganda, Tanzania and Burundi has led to positive sub-regional outlook. While concerns remain about the inclusiveness and broad-based nature of such growth in the sub-region, leading to policy focus on quality of growth, GDP per capita figures show robust improvement over the last decade (see Fig. 23). Burundi, Comoros, D.R.

Congo, Eritrea, Ethiopia, Kenya and Rwanda have seen their per capita GDP more than double during 2000-2011, with growth rates above 180% in Ethiopia and Rwanda.

Figure 23: Per capita GDP growth in Eastern African sub-region member states: 2000-2011.

Source: Based on IMF, World Economic Outlook data.

Note: South Sudan growth rate computed from 2010-2011.

GDP projections by the IMF about the global economy, through the World Economic Outlook effort, offer robust assessment for the sub-region going to 2017. In both small and island states and in large states, GDP is expected to expand markedly, particularly so in Rwanda, Eritrea, Burundi, Kenya, Ethiopia and Tanzania, though the entire region is expected to see expansion (see Fig. 24). Sustaining the economic momentum through energy security is likely to enter the policy debate as robust growth will require increasing supply of energy input. A number of factors can affect the projected scenario, including global energy prices through 2017, the degree of energy intensity of the economy of Eastern African member states, and the degree to which they are exposed to the global energy market. Since all member states import their petroleum requirements (except some net usage in D.R. Congo and limited refining based on imported petroleum), the region is maximally exposed to global energy market shocks.

Shielding economic gains from these shocks in the future will require a regional focus and strategy.

Figure 24: Real GDP (in billion US$US$) of Eastern Africa sub-region member States: 1980-2017.

0 50 100 150 200 250

2000-2011 % Change in Per Capita GDP

25

Source: Based on IMF, World Economic Outlook data.

Petroleum consumption is already surging in the Eastern Africa sub-region. The global share of petroleum consumption in Africa has gradually increased from around 3.25% to about 4% over a decade (see Fig. 25). In the same period, the share of the Eastern African sub-region in Africa’s petroleum consumption increased from about 8% to close to 10%. While the shares seem to have increased only gradually, comparison of absolute consumption levels of petroleum from 2000-2011 shows that while consumption at the continental level increased by slightly more than 40%, the rise in the Eastern African sub-region was 67%. This constitutes a significant increase in exposure to global energy markets.

Figure 25: Petroleum consumption shares of Africa and the Eastern Africa sub-region and consumption percentage changes: 2000- 2011.

0 10 20 30 40 50 60 70 80 90

D.R. Congo Ethiopia Kenya Madagascar South Sudan Tanzania Uganda

0 2 4 6 8 10 12

Burundi Comoros Djibouti Eritrea Rwanda Seychelles

26

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Uganda Djibouti

Madagascar D.R. Congo

Tanzania Ethiopia

Sudan/South Sudan Kenya Source: Based on data from US EIA.

To identify the source of growth in petroleum growth in the Eastern Africa sub-region, a country-by-country trend analysis will be informative. Three observations can be made about petroleum consumption patterns in the Eastern Africa sub-region. First, comparing smaller economy countries with relatively large population and economy countries, the trend is revealing (see Fig. 26). Much of the sub-regional growth in petroleum consumption did not come from smaller economies, such as Somalia, Burundi, Rwanda, Djibouti and Eritrea (though Eritrea’s increase in petroleum consumption is largely related to its confrontation with neighboring Ethiopia, and the need to maintain a large active army resulting from the 1998-2000 war). The growth came from Island States and larger economies, such as Comoros, Madagascar, Uganda, Ethiopia and Tanzania. Second, as a result, large economies and Island States in the sub-region are more exposed to international market risks and the impact there-of.

Third, the trend is likely to continue at least in the short-term since it takes time to alter the structure of the energy system in the region.

Figure 26: Petroleum consumption in thousands bbl/day: 2000-2011.

Source: Based on data from US EIA.

Comparison of percentage changes in petroleum consumption from 2000-2010 further supports the previous proposition. Island States of Comoros and Madagascar saw consumption increases of 56% and 98%, respectively. Larger economies such as Uganda, Ethiopia and

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Eastern

27

Tanzania saw increases in the rage of 75%, 94% and 166%, respectively (see Fig. 27). Smaller economies saw change in the rage of 4.2% in Somalia, 14% in Burundi, 16% in Rwanda and Djibouti, which are modest for a decade change.

Figure 27: Percent change in petroleum consumption in thousands bbl/day: 2000-2011.

Source: Based on data from US EIA.