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D MARKOSE ARACKAL
Every per cent growth in our gross domestic product (GDP) raises our demand for energy by 1.38 per cent. This means that if we are to sustain a 6.5 per cent to seven per cent growth in our GDP, we should also be prepared to find a way of increasing our supply of energy by between nine per cent to 9.6 per cent annually. Much of this will have to be in the way of increased imports of petrol and related products. If we were to sustain this growth for another 10 years, we shall have to import roughly two and a half million barrels of oil every day by 2010. More importantly, we shall have to find someone who is willing to sell us this oil, at a price we can afford.
This question will become particularly important in another decade's time. The crisis in Asia will not last forever. Indeed there are already signs that Thailand and Korea in particular are well on their way back. As the nations in east Asia get back to their winning ways, the increase in demand for oil will bring increasing pressure on thedemand-supply balance of oil in Asia. APEC calculations suggest that Asia might then have to import upwards of 16 million barrels of oil every day. China, who became a net importer of oil only as recently as 1993, might need to import nearly three million barrels per day. Japan, which has virtually no oil of her own, will need to import nearly twice that amount every day.
But significantly, both China and Japan can count on more secure supply lines than we can. Japan is a member of the International Energy Agency (IEA), and as such is entitled to emergency reserves from other member countries in times of dire need. China has been far more aggressive in securing its energy supply lines. The Chinese National Petroleum Company (CNPC) has started actively investing in equity in production facilities around the world. They have entered into agreements with the governments of Kazhakstan, Turkmenistan and Russia to build and operate pipelines to supply the Chinese market. China's increasing influence in theCaspian and middle East ensure her a degree of security we cannot feel. China has also increasingly started asserting its ownership of the Spratly Islands in the South China Sea. These islands, which are claimed by at least five other countries in the region, may hold as much as 200 billion barrels of oil.
The disintegration of the Soviet Union has left us with virtually no in the Caspian Basin region. More importantly, we do not have any influence over supply routes for this oil or gas.
The easiest way to transport oil from this region would have been through pipelines through Iran to the Persian Gulf and then by tankers to ports in west India. US sanctions against Iran, by preventing western firms from investing in infrastructure in Iran, have delayed the supply of Caspian Sea oil. The other way to transport oil or natural gas to India from the Caspian basin is by pipelines either through China or through Afghanistan and Pakistan. Effectively, we are cut off from this source of energy supply.
ThePersian Gulf, therefore will remain the main source of our supply of oil for some time. This makes us susceptible to all the economic and political risks associated with this region. For one thing, the Gulf is among the politically most volatile regions in the world. Twenty-five years of living beyond their means have all but bankrupted some of these nations. They urgently need finance to invest in new technology in the oil sector. Any disruptions, political or economic, in these countries will have immediate repercussions on our supply lines.
Oil-importing nations like India are presented with an opportunity here to secure energy supply. Companies like the relatively cash-rich ONGC could think of investing in equity in production facilities in the Persian Gulf. This could help in two ways. For the firms, it acts a way of diversifying their portfolio of assets and hence in reducing risk. For the country, this is a way of building a more secure long-term partnership with the exporting country.
Such stepswould be supplemented by efforts to reduce our dependence on oil imports. Demand management is one way of doing this. Demand management in this context, implies the use of higher prices for oil products to encourage firms to invest in energy efficiency. It also implies we have to be prepared to be more liberal on imports to ensure use of newer technology which might ensure less energy intensive methods of production.
One other way of strengthening energy security is to establish strategic partnerships along the lines of the `Emergency Oil Sharing' (EOS) programme of the IEA. The Association of South East Asian Nations (ASEAN) has already set up such a programme called the ASEAN Petroleum Supply Agreement (APSA). Critics charge such a programme would be useless because nations in such groupings typically do not have the resources to build large oil reserves like the IEA. But this opinion ignores one difference between the time the IEA was set up and the present scenario. When the IEA was set up, in theaftermath of the oil crisis of 1973, the oil cartel was all-powerful. The advent of new technology and the use of hedging and other trading techniques have weakened the cartel's hold. Threats to energy security in the coming years are more likely to arise from cyclical price increases from shortages rather than outright stoppages in supply. The main problem we would face in such a situation is the effect on our balance of payments (BOP). This will not ensure us security of supply over a long term, but such agreements, by ensuring supply at reasonable prices in times of need, might help prevent short-term BOP troubles.
Long-term security of energy supplies is a task for diplomacy. It is a task that can be accomplished only by creating a web of common interests with oil exporting and transit countries that will make it costly for them to disrupt our supply lines. It is also a topic for a far more accomplished column than this one.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.
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This story was printed from Net Express located at http://www.expressindia.com. Net Express provides a portal to India, with news from The Indian Express and The Financial Express along with sites on travel and tourism, the entertainment industry, the power sector, the environment and much more.
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