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John Daly

John Daly

Dr. John C.K. Daly is the chief analyst for Oilprice.com, Dr. Daly received his Ph.D. in 1986 from the School of Slavonic and East European…

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BRIC's Achilles Heel - Energy

In 2001 Jim O'Neill, then Goldman Sachs head of global economic research and commodities and strategy research, coined an acronym that has increasingly come to dominate the last decade in a study reported entitled, "Building Better Global Economic BRICs."

O’Neill predicted the rise of the four BRIC economies - Brazil, Russia, India and China.

But one factor that O’Neill in his otherwise prescient analysis failed to give sufficient weight to was the rise of the BRIC’s economies upon energy, and it is here that the BRIC world divides starkly between the “haves” and “the have nots.”

And this factor, more than any other, will define the rise of their economies.

The Russian Federation is a “have,” vying for top billing with leading OPEC oil producer Saudi Arabia. Many economists have speculated on the long term effects that relying too heavily on energy exports will have on the Russian economy, but for the moment, oil and natural gas exports pay the bills.

Brazil is in transition, having last year, for the first time in its history, become a net energy exporter. It is unclear at present how much Brazil’s massive offshore southern Atlantic oil and natural gas fields will eventually contribute to the country’s “bottom line,” given the billions needed in investment prior to significant outlet.

…which leaves China and India, not only both net energy importers, but rising paradigms of what seems to be the 21st century incipient economic clash, between China’s authoritarian “managed capitalism” model versus India’s shambolic but undeniably successful freewheeling capitalism.

And the incipient clash point seems to be devolving down to reliable energy supplies.

Last month the State Grid Corp. of China announced that China’s electricity supply is expected to be relatively tight from June to September as electricity consumption in 26 provinces is projected to grow 9.3 percent from 2011 levels. China State Grid Corp. Work Safety Department director Yin Changxin said, "Even though we have a better supply-and-demand situation this summer, the power load will continue its two-digit growth once the economy rebounds." The China Electricity Council (CEC) warned that some parts of the country will experience severe blackouts this summer as the result of an electricity shortage of 30-40 million kilowatt hours. According to the CEC's estimates, China's more developed eastern and southern regions will bear the brunt of the electrical shortages, followed by north and central China.

But while China is merely predicting “tight” power supplies, India is wilting under a torrid tropical summer and gripped by severe power generation shortfalls that have produced 16-hour electricity blackouts in some regions. These are caused by a shortage of fuel and the shaky state of utilities, savaging the country’s power sector’s finances and payment schedules, particularly in northern India, which in May had a deficit of 3,000 megawatts, as demand soared due to a heat wave.

In a scenario playing out across India, the Punjab State Electricity Board (PSEB) is now imposing scheduled power cuts of two-three hours daily in Mohali, where residents are already enduring unscheduled power cuts. PSEB officials said that residents will have to put up with the power cuts until the demand comes down, which will occur only when it rains, noting that electrical demand has already unexpectedly increased by 23 percent this year in Punjab, with PSEB passing the rupee by stating that they have not been able to buy more power to meet demand.

A PSEB spokesman explained to the press that the north region load dispatch center (NRLDC) is the culprit by not allowing PSEB to buy more power to meet the demand, lamenting, "All the interstate power is bought through NRLDC but their systems have been under pressure due to overloading as all the eight northern states under them have been drawing additional power due to higher demand, which has further lead to overloading in the northern grid. In such a situation we have no option, but to impose power cuts whenever the load is more." Casting about for other guilty parties PSEB spokesman blamed consumers, noting, "Every year we give one to two months time to consumers for declaring the actual load they are utilizing but people still don't declare it, which further leads to a demand and supply gap as the demand is much higher than what we expect."

And there you have it – it’s all the fault of those lazy consumers who want to run their air conditioners 24/7 without telling the utility companies in advance.

In both China and India, whose astounding economic growth has been produced within the current generation, the priority on energy supplies is clear – industry comes first and consumers second, however much such a policy might inconvenience them.


But unlike China, the Indian electorate votes, and such a cavalier approach to consumer power concerns may yet to prove a future electoral issue, especially as Pakistan is planning to import 500 megawatts of electricity daily from India and has asked the World Bank to prepare a feasibility study.

A sure vote winner if there ever was one.

By. John C.K. Daly of Oilprice.com

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Leave a comment
  • CPL on June 29 2012 said:
    Pakistan is going to "borrow" 500 megawats from India, who is also experiencing the worst power drought in recorded history. What's India going to do? Put it in a bucket and send it over.

    The infrastructure leading to and from both countries has been picked apart and sold for scrap.

    Just give up the ghost already on the US being around in two years instead of a smoking crater because we all know that's the direction this is going and there is nothing anyone can or will do to change that course.

    The Human race must be culled to a managable level before sometime VERY bad happens, like a venus type of environment impact.

    We are running out of time and options if the human race is to stay around for another century.

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