Bruce Nusabaum, in his book World after Oil published in the early 1980s, dealt with the oil crisis of 1970s, when oil prices had risen from $5 to $30 per barrel, and showed how the world dealt with the crisis by investing more in exploration, especially on the high seas, and severely reduced energy consumption of power-guzzler processes and machines via many computerised process controls (for example, the energy consumption for steel-making was reduced from 18 to 6 Gwh per tonne).
With reduced consumption in processes and machines and rising crude production, oil prices remained stable for many years, and starting rising again in the 2000s once the new finds started getting reduced. I recall Swaminathan Aiyars Challenge of Hubberts Peak dated May 21, 2005, stating that oil prices will rise fast, and the world production will not be able to meet the rising demand of China and India. Hubert had predicted in the 1950s that US oil production would peak (Huberts peak after which production declines) in 1970, and it did.
Various studies show that the world would reach its Huberts peak in 2035, and we are moving towards a huge crisis. There are some other energy sources identifiedsuch as shale gasbut they have huge environmental problems. Gas prices too seem to be peaking along with crude prices, particularly in India, in addition to transportation, processing costs, etc. We have been buying gas at more than $15/MMTU, at the exchange point.
Stephen Leeb first attracted world opinion in his book The Oil Factor, published in 2004. The book was controversial as it predicted an outlandish price of $100/barrel for crude by the end of the decade. When prices started rising fast, he wrote another best-seller in 2006, The Coming Economic Collapse: How You Can Thrive When Oil Costs $200 a Barrel. Fortunately, the economic crisis of 2008 prevented this from happening, but as we come out of the economic crisis, we are inching towards this price.
In India, we face multiple jeopardies. The exchange rate is fast deteriorating, leading to a much higher import price, and the indigenous production percentage is continuously going down. Also, with huge fiscal deficits, the governments ability not to tax or subsidise oil products is getting limited. Whether our exploration policies are right is another issue requiring intense debate.
Aiyar, in his article referred above, and Leeb had talked of alternate energy sourcesnuclear energy, ethanol, gas, solar energy, wind energy, conversion of coal to gas, etc. Leeb had additionally stated that, at some point of time, the nuclear option will have to be given up. In India, the possibility of setting up additional nuclear capacities is getting limited every day, despite the nuclear agreement. The much-hyped alternative sources still produce very expensive and non-grid quality power, and can only be injected into the grid in a very limited way. Even for limited production, the alternate energy sources require large land areas we do not seem to have. Thanks to confused land acquisition, forest clearance and environmental policies, and now controversies on coal allocation, most new coal plants are becoming a distant dream, despite huge coal reserves in India.
Thus, none of these options are good enough and the only choice appears to be hydel energy. A number of studies have shown that hydel power is much cheaper than thermal power in the long run. In thermal projects, the costs keep escalating due to increasing fuel prices, whereas after depreciation of equipment costs, the hydel prices reduce. But, if this option is repeatedly allowed to be sabotaged by environmentalists, hydel power will not be able to grow, and we shall soon have a power famine, crippling all development, and we will also kill the nature-given advantage India has of a very large number of viable sites owing to its topography, abundant hills, snow, rivers, plains, etc. It is unfortunate that environmentalist groups recognise the fact that development is mostly environmentally-unfriendly, and that hydel plants are the least unfriendly. Again, a stable grid requires peaking power, and hydel energy is the best suited, and against an optimum of 40% for Indias grid, we have only 25% hydel power, despite an abundance of viable sites in India. Many European and North American countries have 80-95% of such power vis--vis their consumption. Of course, the plants have to be carefully designed to prevent downstream hazards.
China has dealt with this issue in a brilliant manner. The completion of the Three Gorges project, generating more than 20,000 MWs of power and displacing 1.5 million people, brought the implementation ability of China to world attention. We have such sites in India and must take them up immediately. The North-East projects on the Siang and Sudhansiri rivers can generate more than 21,000 MWs of power (Bhakra produces 2,400 MWs), yet only displacing 1,500 families. The sites are such that they would produce hydel power at an unbelievably high plant load factor of 60%. The 12% free power, as per the government's formula, can convert the economy of this region. There are many such unbelievable hydel sites in the country, which can be similarly exploited, and a Hydel Power Mission would be the biggest reform measure, if explained to the people, and then scientifically implemented. This would, however, require hydel projects to be implemented as per schedule, and large projects to be not delayed abnormally like Tehri and Narmada projects, particularly Maheshwar currently. All such projects were delayed by more than 20 years.
Fortunately, the government of India is fully aware of this compulsion. This is reflected by Rakesh Nath, former chairman CEA, when he said, We are making preparations for power projects in the 12th and 13th Plan, and are planning to add 40,000 MW of hydel power. This ambitious target is against a total of 25,000 MW in the country. We cannot implement such a plan with the rehabilitation/environment issues delaying projects in perpetuity, and our track record of the last twenty yearscompleting only 50% of the targeted power generation targets, for both thermal and hydel projects.
Before I close, I must reiterate what Jeff Rubin wrote in September 2012How Oil Prices will Permanently Cap Economic Growthabout US growth:
At $20 a barrel, increasing annual oil consumption by 2% seems reasonable enough. At $100 a barrel, it becomes easier to see how a 2% increase in fuel consumption is enough to make an economy collapse. Fortunately, the reverse is also true. When our economies stop growing, less oil is needed. For example, after the big decline in 2008, global oil demand actually fell for the first time since 1983. Thats why the best cure for high oil prices is high oil prices (High oil prices also mean local country prices, since they encourage early implementation of energy reformsitalics mine). When prices rise to a level that causes an economic crash, lower prices inevitably follow. Over the last four decades, each time oil prices have spiked, the global economy has entered a recession.
It is absolutely clear that we have to learn to live with prohibitively high energy prices, and therefore must concentrate on India's advantage of a very large potential of hydel power sites and implement sensible environment policies that do not take us to the environment-friendly dark ages.
The author is former special secretary, power, and chairman, Trai