India’s Quest to Seek Synergy in Energy on The Heels of Low Crude
Prices
The dramatic plunge in the global crude
price from a high of 111 dollars a barrel in June 2014 to its lowest level of
45 dollars on January 13 awhile, registering nearly 60 per cent tumble in a
shot span of a few months was unprecedented in the more than half a century
annals of the world’s much-feared commodity cartel, the Organization of
Petroleum Exporting Countries (OPEC). With global economic recovery not gaining
substantial momentum across the continents to ensure higher energy consumption
even at reduced growth prospects, no one is sure as to how far the crude Oil
price will go down or how long it will take to balance demand-supply mismatch
so that prices can regain lost or losing ground.
Energy experts recall that the
diminution in OPEC’s omnipotence could be traced to 1985 when Britain’s North
Sea and the US Alaskan oil flooded the global Oil Market, resulting in a
shift from monopolistic to competitive pricing. But that period petered out in
2005 when escalating Chinese energy demand triggered off a temporary global oil
paucity, letting OPEC’s price ‘discipline’ weapon to get redeployed to the
detriment of oil-importing emerging economies such as ours. But in recent years
particularly after the financial crisis of 2008 when the global economy in
general and the advanced countries in particular suffered low or no growth, the
world’s fossil fuel energy demand fell woefully short of supply. Add to that,
the United States was able to succeed in the production of shale oil which has
begun to play a key role when small and medium-sized producers in the US
successfully thrashed out in 2009-10 as to how to apply to oil production the
techniques of horizontal drilling and hydraulic fracturing that had already
been spectacularly successful for natural gas. As a result, US oil production
soared from about five million barrels a day (mb/d) in 2008 to 9.1 mb/d in
December 2014. In sum, the reasons for the steep drop in crude prices owed
itself to a host of favorable factors that covered among others, growing supply
from non-OPEC countries, particularly the US, a halting recovery in global
demand and Saudi Arabia’s resoluteness not to continue acting as OPEC’s and the
world’s swing producer, particularly when the US production threatens to outrun
the Kingdom’s substantial and substantive share in the global oil market.
The International Monetary Fund (IMF)
is of the view that “overall, lower oil prices due to supply shifts are good
news for the global economy, obviously with major distribution effects between
oil importers and oil exporters”. But with the share of oil consumption in GDP
that determines the energy intensity being high at 7.5 per cent in heavily
oil-importing countries such as India and Indonesia, against 5.4 per cent in
China and 3.8 per cent in the United States, the authorities may have to keep
an unrelenting vigil to avert the painful possibility of how the lower crude
prices would work its way into retail inflation if the consumption of oil also
goes up on a faster clip. Already, the pump prices of petrol and diesel in the
country had fallen sharply. While petrol prices are now Rs 12.27 per
litre lower than August last, diesel prices were down Rs 8.46 a litre since
October with another round of cuts expected in mid-January. Lest the
persistent fall would accelerate pent-up demand for non-renewable and
import-intensive fuel like crude oil and its derivative products, the
authorities are cautious in calibrating the requisite adjustment in whatever
feasible manner they can under the new dispensation of decontrol of prices of
petrol and diesel. That is partly the reason why the government effected hike
in excise duty during November and December in two tranches in 2014 to mop up a
huge Rs 10,000 crore in the remaining part of the current fiscal in a bid to
shore up its revenue to meet the budget deficit without burdening the consumer
but by making the oil marketing companies (OMCs) to take the tab.
Ever since the decontrol of the
prices of petrol first and diesel later, OMCs were given the elbow-room to
adjust selling price of petrol and diesel on import parity cost to leave them
with some leeway to help upstream (production) companies to invest more in
exploration and production so that domestic supply of oil and natural gas could
also gather traction. This is particularly important because persistently lower
oil prices might reduce exploration and production spending and heighten risk
for offshore oil companies. Energy analysts argue that if the government is
able to keep in leash any abrupt upsurge in oil consumption close on the heels
of its drastic price fall in the global market for the past several months by
fostering diversified sources for energy, it can also build a strategic reserve
for energy security in the event of future spike in crude prices which are
likely given the geopolitical stark realities in West Asia and non-OPEC
producers such as Russia. Already, the Government of India, through Indian
Strategic Petroleum Reserves Ltd (ISPRL) is setting up strategic crude Oil
reserves with storage capacity of 5.33 million tonnes at Visakhapatnam,
Mangaluru and Padur. In order to bolster the strategic crude oil storage
capacity, ISPRL through Engineers India Ltd, has prepared a detailed feasibility
study for construction of additional 12.5 million tons of strategic crude oil
storage in Phase II at Bikaner, Rajkot, Chandikhol and Padur. Using the
extant soft global crude prices, the construction of oil storage caverns need
to be fast-tracked so that storage capacity is suffice for securing energy
security. As they say the best time to fix the roof is when sun shines and so
is the best time to build supply stocks is now and here when imported crude
price is cruising downhill for a few more months.
Since the country had been spending
precious foreign Exchange of the massive order of 160 billion dollars
annually on oil imports, the soft crude price now prevailing in the global
market would enable India to save at least 50 billion dollars in a year,
provided there is no massive import volume to cater to the insatiable appetite
for oil by domestic users, individuals as well as industry. Alternatively, the
authorities could broad-base recovery techniques in the existing oil wells of
national oil companies such as ONGC, OIL and GAIL, both onshore and offshore,
making ample use of the slack in the oilfield service companies (OFS) which
must perforce have to renew contracts on their existing rigs at markedly lower
rates. This is also an opportune time for upstream oil companies to
aggressively step up production of oil and gas. It is no wonder that Secretary,
Ministry of Petroleum and Natural Gas, Mr. Saurabh Chandra told a partnership
summit under the umbrella of CII and the Ministry of External Affairs recently
that the government is working on a renewed bid to promote exploration
activities in the country’s oil and gas sector. He said in the last couple of
months, the government has taken several steps to augment “activities in
exploration including a reassessment of the hydrocarbon potentials in the
country, putting in place a plan to survey all sedimentary basins at a cost of
Rs 6000 crore and framing a transparent extension policy for the pre-NELP (New
Exploration Licensing Policy) fields”.
Alongside, using the drastic cut in oil
import bill due to the decline crude Oil prices, the country should seize the
opportunity to step up generation of renewable energy as this promises to stem,
if not stop the massive drain on foreign exchange reserves entailed in the
import of oil, gas and coal. The current installed renewable capacity will need
to go and grow manifold for the country to move to 15 per cent of energy by
2020. As the initial cost of funding these unconventional sources of energy
such as solar, wind, water and biomass are quite expensive with their sale
price for users pegged quite high, efforts need to be stepped up by the
authorities of the Ministry of Non-Conventional & Renewable Sources of
Energy to redouble the gains from this source of unpolluted energy for
ecological balance and to keep India’s eco system undefiled by noxious fuels.
The Prime Minister Mr. Narendra Modi’s ambition of building 100 smart cities
cannot be easy in the absence of due focus on fostering alternative
transportation fuel options that range from gas, ethanol, methanol to suitable
electric power at a time when crude oil prices are on the wane and
offering immense possibilities to explore and exploit. With over 70 per cent of
the consumption being diesel, the highly-polluting and costly fuel, by the
transportation sector mostly heavy duty trucks crisscrossing the country, it is
time India plumped for introducing more and more flexi-fuel vehicles that are
run on a medley of compressed natural gas, diesel, ethanol, petrol and
methanol.
For home consumption of electricity
too, the time has come to go in for conserving precious power by opting for LED
bulbs with the Prime Minister Mr. Modi recently launching a scheme for LED bulb
distribution under Domestic Efficient Lighting Programme (DELP) and a National
Programme for LED-based Home and Street Lighting. The country needs more such
initiatives to solve its myriad energy needs capitalizing on the recent bonanza
being bestowed upon us by the fortuitous fall in the global crude prices,
energy experts assert. There is synergy in energy if only we use
innovation and ingenuity.
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