London (Platts)--21Nov2008

A new forward-looking US intelligence report paints a bleak picture of a
turbulent world characterized by increasing competition and potential conflict
over limited resources of energy, water and other commodities, and warns that
market forces alone will not be able to keep supply and demand in balance.

     "The significant growth in demand from emerging markets, combined with
constraints on new production -- such as the control exerted now by state-run
companies in the global energy market -- limits the likelihood that market
forces alone will rectify the supply-and-demand imbalance," the US National
Intelligence Council says in its Global Trends 2025 report, subtitled A
Transformed World.

     Unprecedented global economic growth will continue to put pressure on a
number of highly strategic resources such as energy, food and water, making it
likely that demand will outstrip easily available supplies over the next
decade or so, the report says.

     "Oil and gas production of many traditional energy producers already is
declining. Elsewhere -- in China, India, and Mexico -- production has
flattened. Countries capable of significantly expanding production will
dwindle; oil and gas production will be concentrated in unstable areas," says
the report, which sees just six countries -- Saudi Arabia, Iran, Kuwait, the
UAE, Iraq and Russia -- accounting for 39% of world oil production in 2025.

     "As a result of this and other factors, the world will be in the midst of
a fundamental energy transition away from oil toward natural gas, coal and
other alternatives." The report questions, however, whether this energy
transition will be completed during the 2025 timeframe, and says energy
scarcity will be "a driving factor in geopolitics." 
     
     CONFLICT OVER RESOURCES 

     Conflict over resources could result. "Perceptions of energy scarcity
will drive countries to take actions to assure their future access to energy
supplies. In the worst case, this could result in interstate conflicts if
government leaders deem assured access to energy resources, for example, to be
essential for maintaining domestic stability and the survival of their
regimes. However, even actions short of war will have important geopolitical
consequences," it says.

     The report also notes that wealth is moving from West to East and is
increasingly concentrated under state control. Indeed, it says, "the major
enhancement of the state role in Western economies now under way as a result
of the current financial crisis may reinforce the emerging countries'
preference for greater state control and distrust of an unregulated
marketplace." 

     National oil companies have "strong economic and political incentives to
limit investment in order to prolong the production horizon," the report says.
"Keeping oil in the ground provides resources for future generations in oil
states that have limited their economic options." 

     The report notes that new powers such as Russia, China and India "have
linked their national security to increased state control of and access to
energy resources and markets through their state-owned energy firms." 

     China, the report says, will be the world's second biggest economy and a
leading military power by 2025 if current trends continue. "It could also be
the largest importer of natural resources and an even greater polluter than it
is now," it says, warning that "US security and economic interests could face
new challenges if China becomes a peer competitor that is militarily strong as
well as economically dynamic and energy hungry." 

     Among the constraints that could limit Russia's ability to achieve its
full economic potential is insufficient energy investment, the report says. At
the same time, it warns, "Europe could pay a price for its heavy dependence
[on Russian energy], especially if Russian firms are unable to fulfill
contract commitments because of underinvestment in their natural gas fields or
if growing corruption and organized criminal involvement in the Eurasian
energy sector spill over to infect Western business interests." 
     
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