Mexican oil, Chinese drilling, Japanese nuclear: Energy trends to watch in 2013
Rogers offers five major energy trends that are likely to take shape and play out in international headlines in 2013.
An employee of Kansai Electric Power Co. speaks to a reporter as the company's Ohi nuclear power plant reactor No. 3 is seen in the background in Ohi, Fukui prefecture. Economic and security concerns could give the Japanese government continued cover to walk back its nuclear phase out policy in 2013, Rogers writes.
Issei Kato/Reuters/File
Energy issues ranked among the top international headlines in 2012 鈥� from reports that聽聽by the end of the decade, to an announcement that the United States would聽. As we look ahead, what are the major energy trends that are likely to take shape and play out in international headlines in 2013? Here are five international energy trends worth watching this year: 聽
1) Renewed vigor in Mexico鈥檚 moribund oil industry.
Mexico鈥檚 oil industry has been in a perpetual state of decline. In its heyday, the country was the world鈥檚 second largest oil producer, just behind the United States. But when the industry was nationalized in the 1930s, it all began to go south. Private foreign companies 鈥� with their capital, skills and technology 鈥� left the country and spent years seeking compensation from the government to cover their losses. In their place, the industry was left with the state-owned Petr贸leos Mexicanos 鈥� Pemex. Unfortunately, Pemex never quite brought the same resources to bear as its foreign competitors and has been plagued by technical deficiencies that have contributed to poor management of its oil fields and their subsequent decline. One need only look to Mexico鈥檚 Cantarell super-giant oil field as a case in point: production has sharply declined from聽. It bodes poorly for a government that relies on oil revenue for roughly 35 percent of its budget.聽(Read More:聽)
But all that is starting to change and Mexico鈥檚 moribund oil industry may be on the rebound. 聽Since his election in July, Mexican President Enrique Pe帽a Nieto started the move toward privatization of the oil industry, which would help bring the necessary capital, technology and skills to onshore oilfields that have been in decline and the deepwater oil fields that have effectively gone untapped. If the industry does turn around, Pe帽a Nieto may singlehandedly be responsible for unleashing the country鈥檚 energy potential, potentially adding as much as 1.6 mbd of petroleum to North American output by 2020.聽
2) China鈥檚 technological development in deepwater drilling.
China made great strides in strengthening its technological edge in deepwater drilling last year. In May 2012, the state-run China National Offshore Oil Company, CNOOC, began operating the country鈥檚 first deepwater drilling rig, putting CNOOC in a position to transform its reach by moving away from solely shallow water operations to new depths, including deepwater blocs of the South China Sea. This is particularly noteworthy since Chinese estimates place聽聽of the South China Sea.
In December 2012, the Canadian government paved the way for CNOOC to acquire the Calgary-based energy giant, Nexen Inc.,, which would add to CNOOC鈥檚 technological edge in deepwater drilling. The deal still faces some scrutiny from the U.S. Congress over Nexen鈥檚 Gulf of Mexico assets. Regardless though, as China continues to develop its edge in deepwater drilling technology, it will speed up the country鈥檚 ability to drill in deepwater blocs, adding a new layer of complexity to the South China Sea imbroglio. In particular, it may undermine the growing push for joint energy development as a regional rule of the road 鈥� especially if not longer needs to partner with foreign companies to drill to what was once unreachable depths.
3) India increasingly focuses on energy development in the South China Sea as part of its 鈥淟ook East Policy.鈥�
India shares many of the same energy vulnerabilities as other countries in East Asia, particularly a growing reliance on petroleum imports from the Middle East and North Africa. Those same vulnerabilities have contributed to New Delhi鈥檚 interest in exploring for energy in the South China Sea, which some countries, including China, view as a potential 鈥�.鈥澛�(Read More:聽)
Not surprisingly, New Delhi has sought joint development with countries in the region, including Vietnam, as a feature of its strategic engagement with countries eastward. 聽But India鈥檚 foray into the South China Sea has drawn China鈥檚 ire, which has protested India鈥檚 recent joint ventures with the Vietnam National Petroleum Corporation. To show its objections, CNOOC opened up blocs in the South China Sea for bidding last year that Vietnam had already contracted to India鈥檚 offshore company, ONGC Videsh. More recently, Chinese fishing boats blocked a Vietnamese seismic vessel in December, causing the ship鈥檚 cables to snap. The episode provoked a response from the Indian government, which said it would 鈥�.鈥� This may lay the groundwork for a greater Indian naval involvement in the South China Sea in 2013; it is something worth watching.
4) Piracy drives Nigerian political instability.
The West African country has been increasingly plagued by increased political instability tied to the government鈥檚 changing policy on fuel subsidies and bombings by the militant Muslim group Boko Haram. Now Nigeria appears to be dealing with increased piracy off its coast, where suspected Nigerian pirates have seized oil tankers and stormed drilling platforms. The Wall Street Journal聽reported in December 2012 that Nigeria has emerged as the new center for African piracy, rivaling Somalia;听.
The growing instability in Nigeria could contribute to higher energy prices globally. Nigeria is Africa鈥檚 largest crude oil producer (and fourth largest exporter of crude oil to the United States). The government aims to increase oil production from around 2 million barrels a day to 2.5 million barrels a day in 2013. But production could be halted by increased political instability driven in part by increased attacks from Boko Haram and piracy. Moreover, continued political instability could drive away foreign investment in the country鈥檚 energy sector. A report in December 2012 found that Nigeria could experience an estimated聽聽unless international energy companies sustain their investments in the country鈥檚 oil and gas sector.
5) Japan continues to walk back its nuclear phase out policy.
Japanese leaders began to walk back the government鈥檚 goal of phasing out nuclear power by 2040聽听2012. Tokyo鈥檚 nuclear phase out policy has stirred concerns among businesses leaders and others worried that retreating from nuclear energy could hurt Japan鈥檚 economy over the long term. Indeed, Japan recorded a record trade deficit in 2012,聽聽that are helping Japan compensate for the lack of electricity generation from nuclear power.
Economic and security concerns could give the Japanese government continued cover to walk back its nuclear phase out policy in 2013. In December,聽The Wall Street Journal聽reported that Tokyo could 鈥�.鈥� Watch for this policy to continue to take shape in 2013. It could have direct implications in U.S. LNG export policy given that Japan is a natural 鈥� and large 鈥� market for liquefied natural gas. Without that demand, the economic case for exporting LNG may be undermined, putting a greater onus on the U.S. government to begin conversations with the South Koreans, Singaporeans and other potential markets for U.S. energy.
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