It has long been acknowledged that the commercial opportunities in the so called ‘BRIC’ markets - Brazil, Russia, India and China - remain significant for energy players. However, new research highlights the fact that, while these opportunities are substantial, major challenges need to be overcome if these opportunities are to be successfully commercialized.  With rapidly growing economies and a wave of direct foreign investment, the BRIC markets are widely seen as core markets for players in just about every industry. Within this context, the energy industry is no exception. The close relationship between GDP growth and energy demand growth make the BRIC markets of particular interest to energy players throughout the value chain. Already, the BRIC markets are heavily intensive and voracious energy consumers. Despite accounting for just 9% of global GDP, the BRIC markets consume 27% of the world’s primary energy, 17% of its oil, 19% of its gas demand and around half of global coal demand. However, these statistics hide the fact that per capita energy consumption levels are extremely low. Three of the four BRIC markets have per capita primary energy demand levels well below the global average, and are a fraction of the levels seen in the UK and US.  Going forward, the rapid growth seen in energy demand in the BRIC markets is certain to continue with no signs that demand saturation is even on the horizon. Over the past decade, Brazil, India and China have all seen demand growth far outpace the world average, and are significantly ahead of the US and UK, where the mature nature of the energy economy leads to only modest year on year demand growth.  Gas has formed the mainstay of this growth. Gas is rapidly boosting its role in the BRIC market energy mix. In recent years, gas demand growth in the BRIC markets has been well above that seen in many more mature economies. Brazil and China have seen particularly strong growth, at between six and seven times the global average.  As the BRIC economies continue to grow, gas demand is unlikely to recede. As the BRIC economies move more towards services and away from heavy industry, the prospects for gas demand remain extremely bullish.

The attractions of the BRIC markets to energy players are, however, not confined to demand-side factors. In the supply side, there remain considerable commercial opportunities given the often significant resource endowments of the BRIC countries. Collectively, the BRIC markets make up 41% of global coal reserves, 9% of oil reserves and 29% of gas reserves. As such, the scope for continued upstream production investment, to both meet indigenous demand and for export, is significant. However, while market fundamentals in the BRIC markets have resulted in, and will continue to result in, significant investments from players throughout the energy value chain, there are a number of barriers to entry frustrating the process.  One of the key threats facing new entrants to the BRIC markets are the dominant, and often entrenched, positions of national energy players and incumbents.  In Brazil, for example, Petrobras dominates the oil and gas value chain, despite the fact that the market was theoretically opened in 1997. Similarly, the other BRIC markets have their dominant players, representing a formidable challenge to new entrants.  Despite this dominance, some foreign players have begun to see success in penetrating these markets. One such example is in India, where Shell, ExxonMobil and Caltex have begun to make an impact on the fuel retailing and lubricants markets - although their expansion remains frustrated by price controls and the influence of national players.

While the magnitude and consistency of demand growth in the BRIC markets will continue to represent strong attractions for energy players in at least the short to medium term, the challenges of competing with established national players should not be underestimated.