Power & Electrical – Electronics : Industry Performance in 2012 ( India & global scenario) & forecast for coming years

The power scenario -while assessing the existing technologies, we shall look at some unconventional technologies and how they have fared in recent times. At the end of the article we will examine the forecasts to see how they will live up to the expectations in near future.

Samya Beidas-Strom and Akito Matsumoto writing in the recent IMF report neatly summarize the first part as : U.S. natural gas and oil production has increased in recent years, driven largely by the commercialization of horizontal drilling and hydraulic fracturing (“fracking”) technology from shale rock.

Top 10 Countries (Total Installed Capacity wise)

Sl. No	Country	Installed Capacity (Thousand MW)
		As on January 1, 2003
		Conventional Thermal	Hydro- Electric	Nuclear	Others	Total MW	% Of World Total
1	United States	689.5	79.4	98.7	17.4	884.9	25.22
2	China	253.0	83.0	2.2	0	338.2	9.64
3	Japan	168.7	21.7	45.9	0.7	237.0	6.75
4	Russia	139.6	44.7	21.2	0.02	205.6	5.86
5	India	91.4	26.3	2.9	1.5	122.1	3.48
6	Germany	77.4	4.8	22.4	10.9	115.6	3.29
7	Canada	33.5	67.1	10.6	1.4	112.5	3.21
8	France	26.7	21.0	63.2	0.8	111.7	3.18
9	United Kingdom	61.7	1.5	12.5	1.3	76.9	2.19
10	Brazil	8.2	62.5	2.0	3.5	76.2	2.17
Total Top Ten		1549.7	412	281.6	37.52	2280.7	64.99
Total World		2386.8	705.2	361.6	55.5	3509.1	100 %

The “unconventional energy revolution” began in the natural gas sector during the past decade, and gas production rose 28 percent between 2005 and 2011, and continued to climb in 2012 albeit at diminishing rates. The rise in unconventional gas contributed to the plunge in natural gas prices, and producers have since focused on liquids-rich gas plays or have migrated to pure oil (or tight oil) plays. Since 2005, application of this technology has put an end to the trend decline in U.S. oil output by increasing oil production from unconventional formations first by maintaining total U.S. oil production at about 7 million barrels a day (mbd) until 2008 (8 percent of daily global production). More recently, from 2009 to the first half of 2012, oil output rose by about 2 mbd to about 9 mbd (10 percent of daily global oil production).

This more recent rise stems largely from tapping unconventional shale deposits in North Dakota and Texas for “tight” oil and other liquid by-products (that is, natural gas liquids) through the use of techniques similar to those pioneered to tap unconventional shale gas. Hydraulic fracturing involves pumping a mix of water, sand, and chemicals into wells at high pressure, thereby cracking the rock containing the liquids. Horizontal drilling enables greater access to pockets of liquids, allowing more to be pumped to the surface. Application of this technique to hydrocarbon liquids (oil) was previously considered too challenging or uneconomic and has raised environmental concerns notably about possible contamination of aquifers.

Source : Energy Information
Administration, U.S. Dept. of
Energy; as updated on June 2005

“Oil” here refers to crude (conventional) oil, condensates, natural gas liquids, and unconventional oil. Unconventional natural gas is found in locations requiring special extraction technologies such as horizontal drilling and fracking. It includes shale gas, tight gas, and coal-bed methane; this gas is similar to conventional natural gas, with the only difference being that their extraction requires unconventional methods. Unconventional oil, such as shale oil (or tight oil), is recovered from shale using the same unconventional technologies as for shale gas but is conventional oil, similar in quality to light crude oil.

The boom in unconventional energy affects other energy markets as well. The downturn in natural gas prices has led to displacement of coal in the U.S. electric power sector and decoupling of U.S. natural gas from crude oil prices. The displacement of coal is largely attributed to the shift from coal to natural gas by U.S. electric power companies in response to lower natural gas prices. On the one hand, coal displacement in the United States has been beneficial to Europe, where demand has increased because of substitution away from higher-priced fuels notably (non-U.S.) natural gas, whose price is still linked to that of oil and from a phase out of nuclear power. On the other hand, rising unconventional natural gas production has also led to a decoupling of U.S. natural gas prices from crude oil prices; gas prices have fallen to their lowest level in a decade.

Rising unconventional oil production has also contributed to the stock build-up in the mid-continent, which led to a large discount in the price of U.S. West Texas Intermediate crude oil compared with internationally traded crude oil varieties for example, Brent and Dubai Fateh.

Top 10 Energy Generating Countries

Sl. No	Country	Generation Net (Thousand MU)
		2002
		Conventional Thermal	Hydro- Electric	Nuclear	Others	Total	% Of World Total
1	United States	2730.17	264.33	780.06	92.64	3867.20	25.17
2	China	1271.07	271.82	25.17	2.32	1570.38	10.22
3	Japan	646.46	81.55	280.34	27.86	1036.21	6.74
4	Russia	547.55	180.18	134.14	2.82	864.69	5.63
5	Canada	155.17	346.77	71.75	8.47	582.15	3.79
6	Germany	341.60	22.89	156.60	27.54	548.63	3.57
7	India	478.21	63.46	17.76	4.09	563.53	3.67
8	France	49.05	59.96	414.92	5.16	529.09	3.44
9	United Kingdom	265.47	4.74	83.64	6.30	360.14	2.34
10	Brazil	28.45	283.23	13.84	14.56	340.07	2.21
Total Top Ten		6513.2	1578.93	1978.22	191.76	10262.09	66.80
Total World		9905.81	2619.10	2546.01	292.15	15363.07	100 %

The future of unconventional extraction is uncertain given its relative cost: crude oil prices would have to range between $50 and $90 a barrel to guarantee commercial viability (breakeven). Hence a drop in crude oil prices to levels seen during the 2008 slump could set back U.S. unconventional oil production. Despite uncertainty, industry analysts suggest that U.S. production could increase by 1 mbd annually until 2015, and possibly beyond. Moreover, because there are large tight oil reserves in other regions of the world, if commercially viable, extraction could offset declining production in maturing conventional fields, thus alleviating concern about oil scarcity.

Finally, abundant unconventional energy might not keep oil prices from rising in the short term, but it could have that effect in the long term because higher energy prices would stimulate unconventional oil development if oil prices remain above $80 a barrel. At the same time, energy substitutability depends on a number of factors: electric power companies switched from coal to natural gas as did the petrochemical sector, but a shift from oil to natural gas in transportation has proved to be much slower.

Top 10 Energy Consuming Countries

Sl. No.	Country	For the Year 2003
		Consumption Net (Thousand MU)	% Of Total World Consumption	Per capita consumption (Kwh)
1	United States	3656.49	24.76	12593.69
2	China	1671.23	11.32	1294.03
3	Japan	946.27	6.41	7438.41
4	Russia	811.51	5.50	5612.64
5	Germany	510.37	3.46	6193.96
6	India	519.04	3.51	494.46
7	Canada	520.90	3.53	16173.50
8	France	433.33	2.93	7200.44
9	Brazil	371.44	2.52	2040.50
10	United Kingdom	346.08	2.34	5758.88
Total Top Ten		9786.66	66.27	64800.53 (55.38 % of World Total)
Total World		14767.75	100 %	117007.38

Source : Energy Information Administration, U.S. Dept. of Energy; as updated on June 2005;
Population Source:- U.S. Census Bureau, International Database

Top 10 Countries (Hydro Installed Capacity)

Sl. No.	Country	Installed Capacity (MW)
		2003
		Total	%
1	United States	79366	11.02
2	China	86075	11.96
3	Canada	69206	9.61
4	Brazil	65311	9.07
5	Russia	44828	6.23
6	India	26910	3.74
7	Norway	26319	3.66
8	Japan	21697	3.01
9	France	21074	2.93
10	Sweden	16523	2.30
11	Italy	13557	1.88
Total Top Ten		470866	65.41
World Total		719928	100.00

Source: Energy Information Administration, U.S. Dept. of Energy, as updated on June 2005

Slower Growth :
Global growth slowed again during the second quarter of 2012 after rebounding during the first. The slowing has been observed in all regions. This synchronicity suggests an important role for common factors, many of which reflected wide-ranging spill-overs from large country-specific or regional shocks. A first shock was the rachetting up of financial stress in the euro area periphery in the second quarter. Second, domestic demand in many economies in Asia and Latin America (notably Brazil, China, and India, but also others) lowed, owing not just to weaker external demand from Europe but also to domestic factors. Growth also decelerated in the United States.

The global economy has deteriorated further since the release of the July 2012 WEO Update, and growth projections have been marked down (Table1.1). Downside risks are now judged to be more elevated than in the April 2012 and September 2011 World Economic Outlook (WEO) reports. A key issue is whether the global economy is just hitting another bout of turbulence in what was always expected to be a slow and bumpy recovery or whether the current slowdown has a more lasting component.

The answer depends on whether European and U.S. policymakers deal proactively with their major short-term economic challenges. The WEO forecast assumes that they do, and thus global activity is projected to reaccelerate in the course of 2012; if they do not, the forecast will likely be disappointed once again.

For the medium term, important questions remain about how the global economy will operate in a world of high government debt and whether emerging market economies can maintain their strong expansion while shifting further from external to domestic sources of growth. The problem of high public debt existed before the Great Recession, because of population aging and growth in entitlement spending, but the crisis brought the need to address it forward from the long to the medium term.

Global Forecast :
Several IMF reports argue that fundamental changes in implementation of structural reforms in various economies hold the key to come out from a slump. Structural reforms will be important in boosting growth and fostering global demand rebalancing while reducing associated vulnerabilities.

In surplus countries such as China and Germany, reforms are needed to boost domestic demand; in deficit countries such as Brazil and India, they are needed to improve supply.

Source : world-nuclear-news.org

In Germany, structural reforms will be needed to boost the relatively low level of investment and, more generally, increase potential growth from domestic sources. In the near term, the underlying strength in the labour market should foster a pickup in wages, inflation, and asset prices, and this should be seen as part of a natural rebalancing process within a currency union. By way of example, inflation in Germany and the Netherlands, the other major surplus economy in the euro area, would have to be about 3 to 4 percent to keep euro area inflation close to the ECB’s target of “below but close to 2 percent,” if inflation in Greece, Ireland, Italy, Portugal, and Spain were kept around zero to 1 percent and inflation elsewhere remained in line with the ECB target.

This underscores the importance of wage and spending adjustments in the surplus economies for the proper functioning of the EMU. The Economic and Monetary Union (EMU) is an umbrella term for the group of policies aimed at converging the economies of all members of the European Union at three stages. Both the 17 eurozone states and the 10 non-euro states are EMU members.

Previous reports for China have stressed the need for better pension and health care support to lower precautionary saving and boost consumption. Progress is being made on these fronts, but the measures will take time to exert their effects on demand. Meanwhile, support for demand continues to come mainly from measures that support more investment. An obvious risk is that the quality of bank lending could be further lowered, adding to already ample capacity in the export sector or boosting already-high real estate prices.

In India, there is an urgent need to reaccelerate infrastructure investment, especially in the energy sector, and to launch a new set of structural reforms, with a view to boosting business investment and removing supply bottlenecks. Structural reform also includes tax and spending reforms, in particular, reducing or eliminating subsidies, while protecting the poor. In this regard, the recent announcements with respect to easing restrictions on foreign direct investment in some sectors, privatizations, and lowering fuel subsidies are very welcome.

Brazil’s consumption boom has been a large component of its strong growth performance, and domestic saving and investment remain relatively low. Reforms could usefully focus on further developing the defined-contribution pillar of the pension system, streamlining the tax system, and developing long-term financial instruments.

Power Shortages :
This slowdown is a continuation of the trend decline in OECD demand (except in Japan) owing to lower oil intensity. Much of China’s demand increase was reportedly to add to the country’s strategic petroleum reserve and, to a lesser extent, to support the still-expanding vehicle usage and growth in petrochemical demand. India’s strong demand intensified initially from irrigation needs given a weak monsoon and then from electricity blackouts and power shortages during the third quarter. Increased Japanese demand reflects the use of oil for power generation after nuclear production was halted in the wake of the Fukushima disaster. Japanese demand is expected to remain high despite the restart of two nuclear plants during July 2012, given the country’s recent decision to phase out nuclear power by 2040.

World’s total energy demand growth
In recent years G3 countries’ fiscal positions have deteriorated, resulting in a sharp increase in public debt levels. This was driven largely by the financial crisis: public spending was increased to address financial institution problems and help maintain output in the face of diminished private demand. In addition, weak private demand has also led to lower public revenue.

On the financial side, capital outflows from the periphery to perceived safe haven economies in the region (Germany, Switzerland, Scandinavian countries) have continued. These flows contributed to declining yields on government bonds and have fostered expanded domestic lending in recipient economies, including for housing.

Near-term prospects for Europe are weaker now than they were at the time of the April 2012 WEO.

The forecast assumes that policymakers in the euro area succeed in containing the crisis through a combination of continued crisis management supportive demand management, and further advancement of measures to deepen fiscal integration and create a full-fledged banking union. Still, uncertainty will constrain confidence and activity for some time, and downside risks loom large.

The baseline tells us that economic activity will pick up gradually, primarily in 2013. This increasing activity reflects a number of factors, including improving external demand due to the pickup in growth in some major emerging market economies, a moderating pace of fiscal consolidation throughout much of the region. Spain is an exception given that consolidation must accelerate to meet deficit targets in 2012-13 and a gradual further easing of financial stress in the euro area periphery as fiscal adjustment advances, policy support increases, and policy credibility and confidence improve. There are broad differences among European economies.

In the euro area, real GDP is projected to contract at a rate of ½ percent in 2012 and to increase by ¼ percent in 2013. In the core economies, growth will broadly stall in 2012, except in the Netherlands, where intensified fiscal consolidation is expected to contribute to contraction. Except for Ireland, which is in a bumpy recovery, the recessions in the economies of the euro area periphery have been deeper, and recovery is generally expected to begin only in 2013, once adjustment moderates.

Growth in other advanced economies in Europe is projected to moderate to ¼ percent in 2012 before picking up in 2013. Domestic demand has generally remained stronger in many economies, reflecting lower pre-crisis imbalances and balance sheet pressure, which, together with declining yields from safe haven inflows, have helped cushion the spill-overs from the euro area crisis. One exception is the United Kingdom, where the financial sector was hit hard by the global financial crisis and where ongoing repair of overstretched private and public balance sheets weighs on domestic demand.

Brazil:
For 2012, the projection is based on the budget, subsequent updates to plans announced by the authorities and the fiscal outturn up to July 2012. In this and outer years, the IMF staff assumes adherence to the announced primary surplus targetand further increases in public investment in linewith the authorities’ intentions.

China:
For 2012, the government is assumed to slow the pace of fiscal consolidation; the fiscal impulse is assumed to be neutral

India:
Historical data are based on budgetary execution data. Projections are based on available information on the authorities’ fiscal plans, with adjustments for IMF staff assumptions. Subnational data are incorporated with a