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On price shocks and supply uncertainty in India
Posted by Yankee on October 18, 2005 - 9:43pm
An article from the Business Standard, an Indian newspaper, makes some relevant observations. First, the reporter recognizes that oil security is about supply, not about prices:
Getting prices right is always desirable. But oil security is better looked at as an issue about quantity uncertainties rather than price uncertainties, about availability rather than the cost of oil. One could measure it in terms of four factors--the role of oil in the domestic energy mix, the dependence on imports, the diversity of foreign supply sources, and the alternatives available if there is supply disruption.
But does ownership stake reduce supply uncertainties? The major source of uncertainty in West Asia and the Caspian is the risk of political disruption and great power geo-politics. If there is a political upheaval or great power intervention in these regions, then an ownership stake will not necessarily help. It may however make sense as a business proposition if oil is expected to become increasingly scarce.
Perhaps most interesting, he even uses the phrase "peak oil", and he does it in a very matter-of-fact way.
On the demand side, it has been estimated that the current global consumption of 30 billion barrels per year will rise four-fold by 2025, mainly because of growth in China and India. In fact by 2025, the share of developing countries in oil consumption will be more or less the same as that of the developed countries.The dependence of the world on West Asian OPEC oil will increase. Even now, one of the better predictors of oil price behaviour is the extent of excess production capacity available in the Gulf, which is very low at present.
The IEA projects a nearly three-fold increase in production in this region in the next 25 years. And this is also, perhaps, the least stable region in the world.
With tight supplies, risks of supply shocks and rising demands, the oil market may become even more unpredictable and volatile than at present. If the peak oil theorists are right prices will ratchet up. More than that, geo-political rivalries will surface between major consumers like the US, China, and India.
I don't know anything about this newspaper, but I'm impressed at how straight-forwardly this topic is presented. No sensationalism—just the dry observation that peak oil may be coming within the next five years, and the world should probably be prepared.
Still, I'd be interested in finding out how the rest of the Indian press addresses this topic.
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Matt Simmons discusses this, among other things, in today's interview with Amanda Lang at ROBTV. Scroll to the half way point (30 minute mark) of the 5:00 PM segment on the following link:
http://www.robtv.com/shows/past_archive.tv?day=tue
Simmons makes an interesting point about the use of natural gas in the tar sands of Alberta, that it should be used for residential heating in Canada rather than to steam the oil from the bitumen.
The segment after Simmons relates to the competitiveness of wind power.
the indian express is well known for its spin on news items.
the hindu is popularly referred to as 'the chinese national newspaper based in chennai'.
the few sane voices are submerged in garbage. i doubt you read the regional language papers to arrive at your opinion.
regarding oil, china has outbid india in a few big projects in the last couple of months and the oil pipelines are not feasible with hostile neighbours. so there is surely a concern.
No wonder India is concentrating more on services exports. It is easy to see that if India likes to compete with China in economic growth and exports it has to increase its energy imports a lot - oil production has stagnated and gas production peaked in 2003. This was a very important event and has led India to make a gas deal with Iran and its arch-enemy Pakistan (pipeline). Until the Iranian gas starts flowing it has to import lots more of oil (about 15% more than last year or about 800 000 bpd more every year to keep its energy supply growing 7% a year (if coal increases by 7% a year). And this will not help to match the Chinese growth.
India has a negative trade balance (mostly for energy imports) and oil prices hit it badly. Everything depends now on the coal production. If it stagnates India will feel an energy crunch, if not, it will help a lot to ease oil demands.