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19January201515:37IST

IndiasQuesttoSeekSynergyinEnergyonTheHeelsOfLowCrudePrices
Feature
Energy

*G.Srinivasan
Thedramaticplungeintheglobalcrudeoilpricefromahighof111dollarsabarrelinJune2014to
itslowestlevelof45dollarsonJanuary13awhile,registeringnearly60percenttumbleinashot
span of a few months was unprecedented in the more than half a century annals of the worlds
muchfearedcommoditycartel,theOrganizationofPetroleumExportingCountries(OPEC).With
globaleconomicrecoverynotgainingsubstantialmomentumacrossthecontinentstoensurehigher
energyconsumptionevenatreducedgrowthprospects,nooneissureastohowfarthecrudeoil
pricewillgodownorhowlongitwilltaketobalancedemandsupplymismatchsothatpricescan
regainlostorlosingground.
Energy experts recall that the diminution in OPECs omnipotence could be traced to 1985 when
BritainsNorthSeaandtheUSAlaskanoilfloodedtheglobaloilmarket,resultinginashiftfrom
monopolistictocompetitivepricing.Butthatperiodpeteredoutin2005whenescalatingChinese
energy demand triggered off a temporary global oil paucity, letting OPECs price discipline
weapontogetredeployedtothedetrimentofoilimportingemergingeconomiessuchasours.But
inrecent years particularly after the financialcrisis of2008whenthe globaleconomy ingeneral
andtheadvancedcountriesinparticularsufferedlowornogrowth,theworldsfossilfuelenergy
demand fell woefully short of supply. Add to that, the United States was able to succeed in the
productionofshaleoilwhichhasbeguntoplayakeyrolewhensmallandmediumsizedproducers
intheUSsuccessfullythrashedoutin200910astohowtoapplytooilproductionthetechniques
of horizontal drilling and hydraulic fracturing that had already been spectacularly successful for
naturalgas.Asaresult,USoilproductionsoaredfromaboutfivemillionbarrelsaday(mb/d)in
2008to9.1mb/dinDecember2014.Insum,thereasonsforthesteepdropincrudepricesowed
itself to a host of favorable factors that covered among others, growing supply from nonOPEC
countries,particularlytheUS,ahaltingrecoveryinglobaldemandandSaudiArabiasresoluteness
not to continue acting as OPECs and the worlds swing producer, particularly when the US
production threatens to outrun the Kingdoms substantial and substantive share in the global oil
market.
TheInternationalMonetaryFund(IMF)isoftheviewthatoverall,loweroilpricesduetosupply
shiftsaregoodnewsfortheglobaleconomy,obviouslywithmajordistributioneffectsbetweenoil
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 oilimporting countries such as India and
Indonesia,against5.4percentinChinaand3.8percentintheUnitedStates,theauthoritiesmay
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,thepumppricesofpetrolanddieselinthecountryhadfallensharply.Whilepetrolprices
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 midJanuary. Lest the persistent fall would
accelerate pentup demand for nonrenewable and importintensive fuel like crude oil and its
derivativeproducts,theauthoritiesarecautiousincalibratingtherequisiteadjustmentinwhatever

feasible manner they can under the new dispensation of decontrol of prices of petrol and diesel.
That is partly thereason why the government effectedhike in excise duty during Novemberand
Decemberintwotranchesin2014tomopupahugeRs10,000croreintheremainingpartofthe
current fiscal in a bid to shore up its revenue to meet the budget deficit without burdening the
consumerbutbymakingtheoilmarketingcompanies(OMCs)totakethetab.
Eversincethedecontrolofthepricesofpetrolfirstanddiesellater,OMCsweregiventheelbow
room to adjust selling price of petrol and diesel on import parity cost to leave them with some
leewaytohelpupstream(production)companiestoinvestmoreinexplorationandproductionso
thatdomesticsupplyofoilandnaturalgascouldalsogathertraction.Thisisparticularlyimportant
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
keepinleashanyabruptupsurgeinoilconsumptioncloseontheheelsofitsdrasticpricefallinthe
global market for the past several months by fostering diversified sources for energy, it can also
buildastrategicreserveforenergysecurityintheeventoffuturespikeincrudepriceswhichare
likelygiventhegeopoliticalstarkrealitiesinWestAsiaandnonOPECproducerssuchasRussia.
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,MangaluruandPadur.Inordertobolsterthestrategiccrudeoilstoragecapacity,
ISPRL through Engineers India Ltd, has prepared a detailed feasibility study for construction of
additional 12.5 million tones 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
cavernsneedtobefasttrackedsothatstoragecapacityissufficeforsecuringenergysecurity.As
they say the best time to fix the roof is when sun shines and so is the best time to build supply
stocksisnowandherewhenimportedcrudepriceiscruisingdownhillforafewmoremonths.
Sincethecountryhadbeenspendingpreciousforeignexchangeofthemassiveorderof160billion
dollars annually on oil imports, the soft crude price now prevailing in the global market would
enableIndiatosaveatleast50billiondollarsinayear,providedthereisnomassiveimportvolume
to cater to the insatiable appetite for oil by domestic users, individuals as well as industry.
Alternatively, the authorities could broadbase recovery techniques in the existing oil wells of
nationaloilcompaniessuchasONGC,OILandGAIL,bothonshoreandoffshore,makingample
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,MinistryofPetroleumandNaturalGas,Mr.SaurabhChandratoldapartnershipsummit
under the umbrella of CII and the Ministry of External Affairs recently that the government is
workingonarenewedbidtopromoteexplorationactivitiesinthecountrysoilandgassector.He
saidinthelastcoupleofmonths,thegovernmenthastakenseveralstepstoaugmentactivitiesin
explorationincludingareassessmentofthehydrocarbonpotentialsinthecountry,puttinginplace
a plan to survey all sedimentary basins at a cost of Rs 6000 crore and framing a transparent
extensionpolicyforthepreNELP(NewExplorationLicensingPolicy)fields.
Alongside,usingthedrasticcutinoilimportbillduetothedeclineincrudeoilprices,thecountry
shouldseizetheopportunitytostepupgenerationofrenewableenergyasthispromisestostem,if
notstopthemassivedrainonforeignexchangereservesentailedintheimportofoil,gasandcoal.
The current installed renewable capacity will need to go and grow manifold for the country to
moveto15percentofenergyby2020.Astheinitialcostoffundingtheseunconventionalsources
ofenergysuchassolar,wind,waterandbiomassarequiteexpensivewiththeirsalepriceforusers
pegged quite high, efforts need to be stepped up by the authorities of the Ministry of Non
Conventional&RenewableSourcesofEnergytoredoublethegainsfromthissourceofunpolluted
energyforecologicalbalanceandtokeepIndiasecosystemundefiledbynoxiousfuels.ThePrime
MinisterMr.NarendraModisambitionofbuilding100smartcitiescannotbeeasyintheabsence
of due focus on fostering alternative transportation fuel options that range from gas, ethanol,
methanoltosuitableelectricpoweratatimewhencrudeoilpricesareonthewaneandoffering

immense possibilities to explore and exploit. With over 70 per cent of the consumption being
diesel,thehighlypollutingandcostlyfuel,bythetransportationsectormostlyheavydutytrucks
crisscrossing the country, it is time India plumped for introducing more and more flexifuel
vehiclesthatarerunonamedleyofcompressednaturalgas,diesel,ethanol,petrolandmethanol.

Forhomeconsumptionofelectricitytoo,thetimehascometogoinforconservingpreciouspower
byoptingforLEDbulbswiththePrimeMinisterMr.ModirecentlylaunchingaschemeforLED
bulb distribution under Domestic Efficient Lighting Programme (DELP) and a National
ProgrammeforLEDbasedHomeandStreetLighting.Thecountryneedsmoresuchinitiativesto
solveItsmyriadenergyneedscapitalizingontherecentbonanzabeingbestoweduponusbythe
fortuitousfallintheglobalcrudeprices,energyexpertsassert.Thereissynergyinenergyifonly
weuseinnovationandingenuity.
*Sh. G. Srinivasan is a freelance journalist based in New Delhi and can be contacted at
geeyes34@gmail.com
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