It’s possible that international crude prices may come back to two digits for several years. Consider: the US lifts the sanctions on Iran (like they did for Libya), or the Shias, Sunnis and Kurds in Iraq all eagerly line up for jobs in neighbourhood Exxon-Mobil oilfields and BP refineries, or the Saudis decide to pump out all their oil in the next 25 years. Not very likely though.
Super-spike is the latest buzz-word. When do we actually see the super-spike? The $140 line has been breached already. Will the super-spike come at $150, $175 or $200?
It’s also possible that a theory of ultra-spike will become even more popular. Consider: Israel bombs Iran’s strategic facilities and Iran mines the Straits of Hormuz and sinks one or two VLCCs causing fire, explosion, oil spill, submerged wrecks and insurance claims, or one jeep, one midget submarine, one micro-light aircraft, one man on a cycle or a dinghy gets through and takes out half a million barrels of production capacity or pipeline capacity or port capacity or refining capacity or control capacity, or a Regulator cracks down on the biggest casino, the NYMEX. Any one of many such scenarios may become breaking news at any time.
By all accounts, we have to manage with the given situation of importing 75% of our crude requirement in a price band of say $125-175 for the near future.
A winning strategy must contain the worst contingency. Our national preparation is the periodic dramabaazi on price-rise, tax-cut and oil bonds; latest is the announcement that Sarkar Mai-Baap will issue solar lanterns to the villagers so that kerosene demand comes down! This is black humour at its worst. Incidentally, did anyone remember the claims on rural electrification? Payments on contracts for buying transformers, erecting poles and stringing wires must have been settled and the kick-backs received, but there is no power in the huts; the instant solution will be to ask that other Ministry to come up with some slides some months in the future, and surely, they will conclude by suggesting that perhaps yet another Ministry should present some more slides some months in the future. At the end, there will be a COS; at the very end, there will be a GOM, and then the encore, of course.
As a nation, we must build and sustain our competitive edge in the global marketplace where volatility in commodity prices is a fact of life. This will not happen in the ostrich paradigm of administered pricing predicated on rape of corporate governance in listed public sector oil companies. Value worth tens of billions of dollars in these companies has been destroyed to achieve the GDP growth in this decade. Now that the golden goose is allegedly comatose, what happens next? What is the honest difference between printing paper bonds and printing paper money? Both are promissory notes.
As a nation, we must learn to respect the value of energy. Politically motivated ad hoc energy pricing (let’s not forget the inducement of free power, only that the farmers mostly don’t get any power) has resulted in high energy intensity in all sectors—household, commercial, industrial, agricultural and transportation. Recognising that our political leadership, notwithstanding the oath of office, will continue to mortgage the future to secure electoral gains, one does not expect rational pricing (even at the level of Pakistan or Bangladesh or China) to happen unless the bankruptcy of 1991 is revisited. Unsustainably cheap energy pricing results in unsustainably cheap popularity. Anti-incumbency will never be an issue if subsidies could guarantee re-election.
Energy prices will remain high and political morality, low. That leaves demand management as the only viable option to prevent unthinkable chaos; one remembers the day in May 1995 when Delhi ran out of diesel, and the panic was compounded by a rumour that petrol was also going out-of-stock. That summer, people were killed in riots over diesel in western UP.
Demand management, however, is the polite name for rationing; any effort to impose rationing will inevitably create yet another black-market in the oil business and irretrievably retard economic growth. The optimal approach is demand optimisation i.e. sensible conservation without any material loss in the socio-economic comfort zone.
Dr Vijay Kelkar, then Petroleum Secretary, had sounded the alarm over ‘dieselisation of India’ in his Lovraj Kumar Memorial Lecture (1997). Dr. APJ Abdul Kalam envisioned ‘energy independence for India’ in his Presidential address at ONGC’s golden jubilee three years’ back. The first meaningful and practicable step towards energy independence for India is to arrest continuing dieselisation. More than 30% of our commercial energy comes from oil (gas excluded), and diesel (including adulterated kerosene) accounts for 50% of total oil consumption. At 15%+, diesel is the second biggest source of energy next only to coal (50%+). Going by percentage share of commercial energy, diesel is more than five times more important than nuclear energy, the theme of Kissa Kursi Ka redux.
Let’s reconcile to the fact that there will be no commercially viable, mass-scale substitute for diesel (and also for petrol and jet fuel) in off-the-track transportation for at least one more generation. The key problem is that we are increasingly using diesel for power generation where better substitutes are available.
There is no authentic data on the total power generated by diesel gensets and on the breakup of diesel consumption in transportation vs. generation; nevertheless, a drive through Gurgaon on any evening brings out the enormity of the problem: an entire city booming on diesel.
The author is former chairman, ONGC, and chairman, TrIdea Pvt Ltd...
