The Tug-of-War for Energy "How then can developing countries be dissuaded from striving to automobilize their societies as China now wishes to do? The world still spins on the energy of fossil fuels non-recyclable and irreplaceable." -- Benjamin R. Barber, Jihad vs. McWorld In today's fast moving world, we're constantly seeking instant gratification. Ten minute oil changes… microwave cooking… e-mails vs. snail mail… Internet shopping vs. store shopping… But not everything comes to us in a blink of an eye. Not everything evolves in a matter of minutes. Case in point -- developing nations. No matter what we may think -- or want -- these nations do not "Pass Go… and mysteriously collect the magic card of high tech." Instead, they must trek towards a 21st century economy over a long period. And along the way, they must first become industrialized nations. Japan did it. In fact, some would call Japan an economic miracle. In 2000, Japan used 25 times more steel than what it consumed in 1950. From 1960 to 1990, Japanese car ownership surged by a factor of four. Eleven million Japanese took to the sky in 1990, up from just 1 million in 1972. Little wonder then, that over the last half of the 20th century, Japan's consumption of energy rose by a factor of five. South Korea and China are both going through this transformation, following in Japan's footsteps, building a concrete infrastructure driven by the moving assembly line and surrounded by roads and highways. All these changes are built upon the power of petroleum -- preferably oil. Why oil? It is easy to transport, has universal applications and packs an enormous energy punch for its weight. Throughout the 20th century, petroleum was the power behind economic growth. While the world's GDP rose by a factor of 20 over the past 100 years, oil consumption rose by a factor of 30. As developing nations like China become the Japans of tomorrow, it will create a cornucopia of economic growth for the world's economies. An Ever-Shrinking Supply The total demand of primary energy worldwide is expected to increase by 30% between 1997 and 2010, and by nearly 60% by 2020, according to the projections of the International Energy Agency's World Energy Outlook 2000. In 1997, slightly more than 1 billion people living in the industrialized countries consumed about 54% of the world's total energy supply, while about 5 billion people in developing and transition economies consumed the remaining 46%. By 2020, the industrial world's share of world petroleum consumption is expected to decline to 44%. World demand for electricity is growing more rapidly than any other energy use and -- at an average growth rate of 2.8% a year -- it will almost double over the 1997-2020 period. Growth will be particularly high in developing countries and is projected to be 4.6% annually, compared to 1.6% in the Organisation for Economic Development. Petroleum is our #1 energy provider. Its refinement into gasoline powers 90% of the cars, vans and smaller trucks that the world drives. Some of the other uses include: New Energy Consuming Giants If some of the world's larger developing nations replicate Japan's economic miracle, it will put an unbearable strain on the world's oil supply. Fortune magazine points out that if the per capita energy consumption of China and India rise to that of South Korea, and the Chinese and Indian populations increase at currently projected rates, "these two countries alone will need a total of 119 million barrels of oil a day. That's almost double the world's entire [petroleum] demand today." Author Benjamin R. Barber is even more pointed in his assessment of Third World development. "Will China really pursue an automotive economy for everyone as it proposed it would do in 1994? A billion more cars will do China's independence in as surely as it will exhaust global mineral and fossil fuel supplies. If the Chinese were to drive as many per capita passenger miles as Americans currently do each year, it would take only five years to use up all the Earth's known energy reserves." Every time I hear that China or India is building new roads or manufacturing new cars, all I can say is: "Bully for them." All this demand will simply draw down the world's finite petroleum reserves. And that's bad news for petroleum consumers… but great news for resource investors. Take a look at the Outstanding Investments portfolio on this Web site to see where the leaders are. And remember to review the issues and the hotlines for updates on the market and the natural resource sector and how you can profit from it. And if you have any questions regarding this service, please don't hesitate to contact us at OI@agorafinancial.com. | 
