вторник, 15 февраля 2011 г.

Can the Developing World Live with $100 Plus Oil? - is a new research of SKOLKOVO

The US Department of Energy calls oil “the lifeblood of modern civilization.” Approximately 85 million barrels are consumed each day. Oil currently supplies 37 percent of the world’s energy demand. It powers nearly all of the world’s transportation, without which production and trade would grind to a halt.

At $60 - $80 per barrel, oil prices are probably somewhere in their “sweet spot”. That is, at a level that is neither too high to depress global economic activity but neither too low in discouraging the movement toward alternative energy resources.

How might $100 plus oil per barrel impact the global economy? If the higher petroleum prices are largely a consequence of faster global economic activity (i.e. – a demand shock), as they were last decade, then higher prices are unlikely to significantly dampen the level of quantity demanded, particularly over the short-run.

However, a distinctly new paradigm in the global crude oil markets has been unfolding in recent years. Stagnant demand among the rich, developed economies, who historically have been the largest consumers of crude oil, is being more than offset by increased demand from the emerging market economies. Oil use in the developing world has been rising robustly, even during the most recent global recession. This is the first time oil prices have rallied while the developed economies have been growing so sluggishly.

Energy price increases cause a transfer of income from oil importing to oil exporting countries. Oil price increases act as a tax for net oil importing economies.

Some of the highlights of the paper’s findings include

  • Over the next decade, more than 90 percent of the demand expansion in energy is expected to come from the emerging market economies.

  • • A rise in oil prices from $75 to $100 a barrel (annual average) would cost the global economy approximately 1.3% in net growth during the first year.
  • Emerging Asia is clearly the region that is the most vulnerable to higher oil prices. Strong economic growth has increased the regions’ appetite for energy enormously in recent years, more than offsetting recent gains in efficiency and oil currently consumes 3% of the region’s GDP.
  • In the not too distant future, China remains relatively resilient to higher oil prices. Even oil averaging $120 is only expected to shave growth by 1.7%. Its oil dependency, however, is set to grow very rapidly over the next decade as production remains stagnate and consumption continues growing rapidly.
  • Among the big emerging market economies, India has become the most vulnerable in recent years. Oil at $100 and $120 per barrel is expected to reduce economic growth by a maximum of 1.5% and 2.7%, respectively. For a nation critically trying to raise its growth rate north of 8%, these are not inconsequential energy drains.

What about for a large net exporter like Russia? As was illustrated last decade, the economic consequences of higher energy prices were awesome for Russia’s economy. The world’s second largest producer and net exporter, Russia produced and consumed 9.9 and 2.8 million b/d, respectively, in 2009. Its oil price real GDP elasticity is a whopping 14%, implying a 33% average annual price shock alone would amount 4.6% of Russia’s GDP (8.4% of GDP at $120 per barrel). If these figures are accurate, why was Russia’s real GDP growth rate not even faster last decade?17 Recall that much of the oil revenue from Russia’s state owned oil sector accrues to state coffers. Russia’s Reserve Fund accumulates proceeds from the export of non-renewable natural resources. This is the primary reason Russian foreign exchange reserves exploded from
$48 billion in 2003 to $456 billion by 2008. The 75% decline in oil prices (from peak to trough) also explains the almost 8% collapse in Russia’s GDP in 2009.

In view of the above, Russia will be the greatest beneficiary of higher prices among the big emerging market economies. Unfortunately higher prices will probably kill any structural reform momentum Russia so desperately now needs.

You can read a full text of the research here

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