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BRIC energy markets: Part 1

Oilfield Technology,

The acronym ‘BRIC’ was coined in 2001 by economist Jim O’Neill, who proposed that Brazil, Russia, India and China could become the world’s most dominant economies by the year 2050. Whether or not people agreed with the theory, the cleverness of the acronym put it into widespread use. The underlying idea has held true: that the global economy has shifted away from the traditional developed economies to the developing economies, and that within the developing economies, some are well underway to becoming economic powerhouses. In fact, O’Neill recently moved on to create his next acronym, MINT, standing for Mexico, Indonesia, Nigeria and Turkey, perhaps reflecting the idea that the BRIC countries have already shown enough growth that it is now time to look to the next wave of developing economies. Yet the BRIC grouping continues to fascinate economists, and the acronym is especially appealing. A brick conveys weightiness and solidity, a testament to the economic successes achieved. Moreover, a brick implies construction and building, consistent with economic growth and activity. The idea of having four BRICs allows an image of four cornerstones for a platform or a foundation.

But bricks do not make themselves. Each country in the BRIC grouping has faced many challenges in achieving the level of economic success they have. Each has taken a different path to growth, and each is affected in different ways by events in the global economy. The four countries are like four very different bricks, not always fitting together and not always supporting a platform on the same level. In the author’s opinion, the BRICs show solidity, but not solidarity. The BRIC countries have tried to organise themselves into an economic bloc, and they have held annual summits since 2009. Despite cultural and political differences, these economies have a collective weight that is impossible to ignore, and they see the advantages of working together as a geopolitical force. Russia and Brazil are seen as resource rich, while China and India provide massive consumer markets.

The BRICs are home to a huge segment (41%) of the world’s population and work force. China is the world’s most populous country, with a population of 1.35 billion, and India is the second most populous at 1.22 billion. Brazil, with a population of 201 million, is ranked sixth in the world, and Russia is ranked 10th at 146 million. The BRICs are home to 44% of the world’s work force (approximately 1.46 billion of 3.3 billion globally). The size of the population in the BRIC countries is inversely related to the GDP per capita figures. Russia’s GDP per capita of US$ 17 500 leads the group, followed by Brazil at US$ 11 700. China’s GDP/capita falls to US$ 9100, however, and India’s is only US$ 3800/person. Although the Chinese and Indian economies are growing strongly, approximately 13.4% of the Chinese population lives below the poverty line, while nearly 30% of the Indian population lives in poverty. India also discriminates against women and girls, and female literacy rates are only 50.8%, comparing very poorly with female literacy rates in China (92.7%,) Brazil (90.7%,) and Russia (99.6%.)

While the BRICs contain 41% of the world’s population, they produce only 26% of the global GDP. Clearly, a common goal will be to increase wealth and standards of living for their immense populations. Energy production and use will be critical for all four.

The energy mix

China’s energy market surged past Russia’s in 1993, while the Russian market was still in decline. Chinese energy demand growth continued to accelerate, growing at 5.3%/y from 1985 to 1995, 6.1%/y from 1995 to 2005, and 7.9%/y from 2005 to 2012. Russian energy use fell from 878 000 toe in 1989 to 602 000 toe in 1997 before leveling off. Demand in 2012 was 694 000 toe. Indian energy demand has grown swiftly, rising from 133 000 toe in 1985 to nearly 564 000 toe in 2012, a growth rate averaging 5.5%/y from 1985 through 2012. Brazilian energy use expanded at 3.5%/y from 1985 through 2012, and demand reached approximately 275 000 toe in 2012. Chinese energy use was nearly 10 times as large, over 2.735 million toe in 2012. China accounted for over 64% of BRIC primary energy use is 2012.

China stands out as the world’s leading consumer of coal. Coal accounts for approximately 68% of the Chinese energy mix. Oil is a distant second at 18%, and natural gas provides for only 5% of China’s primary energy needs. Coal is also the dominant energy source in India, where it provides for 53% of Indian primary needs. Oil accounts for 30% of India’s energy mix, followed by natural gas at 9%. Russia is the only BRIC country where natural gas accounts for the majority (54%) of the primary energy mix. Russia’s natural gas reserves are estimated at 1162.5 trillion ft3, second in the world only to Iranian reserves. Russia’s approach has been to consume natural gas in the domestic market whenever possible to free up additional oil for export. Petroleum contributes 21% to Russia’s energy mix.

Brazil has the highest percentage of oil in its energy mix, 46%. Brazil also has the distinction of being far and away the largest consumer of hydropower, which provides for 34% of primary energy demand. Brazil has the highest percentage use of renewable energy, at 4% of the mix, being well known for its extensive use of ethanol in the transport sector. Brazil is the world’s second largest producer of ethanol, after the US.

The full article can be found in the April issue of Hydrocarbon Engineering.

Part 2 of this abridged version can be found here.

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