Bric(Brazil, Russia, India, China) overtakes US in energy: Goldman Sachs

United Nations: The main challengers to US economic power—Brazil, Russia, India and China—have overtaken US in dominating the global energy industry, according to a study by Goldman Sachs.

The rising power of the four countries—the new economic tigers nicknamed the Brics’—is already evident in the metals and mining sector and is starting to be felt in insurance and consumer-related industries, said Anthony Ling, a managing director at the investment bank.

“For any company operating on a global scale, world is changing rapidly, more challenging than ever before, truly globalising,” he said, and one of the significant changes is “rise of Bric economies.”

At the end of the first Gulf War in 1991, 55% of the 20 largest companies in the energy industry by market capitalisation were American, and 45% were European, according to Goldman Sachs study. But in 2007, 35% of the 20 largest energy companies are from Bric countries, about 35% are European, and about 30% are American, the study said.

“The US is now lagging with the smallest percentage number of energy companies worldwide,” Ling said. “If you think about the global resource industry typically being a leader in terms of global trends, we’re starting to see this replicated in the mining industry, where 20% of the top 20 companies are now from Bric countries,” he said. “We believe this sort of pattern will be repeated industry by industry.”

It is already evident in the insurance business, where Brics account for about 10% of the top 20 companies, and in the global beverage industry, where the new economic powers are just starting to show with about 5%. Ling predicted the Brics would soon be moving into the food and pharmaceutical sectors.

If investors and corporations don’t take the growing power of the Brics in the global economy into account, he warned, they will lose out on investment growth and competitive advantage for their companies.

Ling, who has been involved in analysing the energy industry for 20 years, said he did not believe anyone polled after the first Gulf War “would come remotely close” to predicting the market capitalisation of the energy industry today. “I think there’s a number of factors, which I think is a very good case study for just how rapidly changing the competitive environment for most industries are,” he said.

Exxon Mobil is still the No. 1 energy company by market capitalisation today, as it was in 1991, Ling said. But he said it is now followed by the likes of PetroChina Co, a unit of state-owned China National Petroleum; Gazprom, the Russian gas monopoly; Petrobras, Brazil’s government-run oil company; China’s Sinopec; Russi’s Rosneft and Lukoil; China National Offshore Oil Corp; and India’s ONGC.

“So you have major state energy companies that have entered the market capitalisation ranks,” he said. “I think it’s a combination of the US energy industry falling dramatically behind the rest of the world for a number of reasons.” First, Ling said, energy production has changed. Goldman Sachs analysed about 170 new projects around the world, each in excess of 500 million barrels, “the socalled legacy assets that will drive production in the future,” he said.

Ling said 70% of that new production is coming from outside the Organisation for Economic Cooperation and Development, which includes the world’s richest nations including the US, Japan, South Korea, Canada, and major European nations.