Reflect on the following disparate facts: the International Energy Agency (IEA) estimated that in 2008 India spent approximately $40 billion on subsidies to the petroleum sector. This amount was next only to the sums paid out by Saudi Arabia. Even Iran doled out less; the consumption of petrol and diesel in the OECD countries has peaked. In fact, it shrunk by approximately 8% over the period 2007-09. On the other hand, the demand for these products in India rose by 15.2% and 9.4%, respectively, in 2009 alone. This rate of increase is close to the highest rates seen in the past 15 years; the OECD countries require 1.1 barrels of oil equivalent (at market exchange rates) to produce $1,000 worth of GDP. The non-OECD countries require 3.5 barrels to produce an equivalent value. India is a significant contributor to this non-OECD statistic; ONGC will be seeking a special dispensation from the government to invest Rs 15,432 crore (loan plus equity) to acquire an 11% stake in a heavy oil field in the Orinoco oil belt of Venezuela. ONGC?s net worth in March 2009 was around Rs 80,000 crore; the government has acknowledged that ONGC/OIL produces only around 28% of the hydrocarbons discovered. International oil companies, on the other hand, average a recovery rate of 40% in fields of comparable geology; our petroleum PSUs allocate less than 1% of their turnover to R&D, amongst the lowest in the industry.

What does this jumble of facts suggest or, might I say, portend? The first point to note is the correlation between a free market on the one hand and demand-conservation and energy-efficiency on the other. The demand for petroleum products in the OECD countries has peaked because consumers have not been cushioned by subsidies. They have responded to high oil prices by conserving demand, by investing in less expensive alternatives and by improving the efficiency of energy usage. The opposite trend is evident in India because the market has been smothered by subsidies. No doubt the demand for petroleum products has increased because of industrialisation, urbanisation and changing lifestyles. But the acceleration in the rate of consumption of petroleum products and the widening gap in the efficiency index between the OECD countries and India is because of the absence of countervailing market incentives.

The second point to note is that India?s energy security is becoming too dependent on long and potentially brittle supply links. ONGC?s foray into Venezuela has been driven by a strategic policy to acquire equity crude overseas. The merits of this policy can be debated. Oil is a tradable commodity and it could be argued that rather than exposing itself to political, economic and technological risks, ONGC should simply purchase its requirements on the open market, since in the event of a global supply disruption, the supplies from all oil fields, including those in which ONGC has a portfolio stake, would be curtailed. I am sure ONGC has adduced strong commercial and strategic reasons for recommending such an investment. It is, however, to point out that the Venezuelan foray is a consequence of current market conditions. ONGC has been compelled to move far afield because it does not have access to ?easy? and geographically proximate foreign oil fields. These fields are controlled by the state-owned companies of the country, and if and when foreign entities are invited to participate, it is on stringent terms without equity rights. ?Resource nationalism? is the prevailing sentiment. This means, ipso facto, that our energy security policy will be continually exposed to distant and complex logistic, distribution and technical risks. These risks can no doubt be managed but the question should be asked: Has the balance of emphasis in the energy security policy shifted too much towards supply accretion and away from demand management?

The final point to note is that Indian companies do not appear to be harnessing the full value of technology. The statistic on the allocation of funds for R&D suggests that innovation is not in the ?forefront? of petroleum PSUs? strategic thinking. This may, of course, be a mistaken inference. It might just be that companies have been compelled to reduce their allocations because of short-term cash exigency. Their balance sheets have, after all, been weakened by years of price regulation and they may not be in a position to spend money on activities with a lagged payback. I doubt that is the explanation but I do know that if technology is not pushed forward on their strategic agenda, the companies will fail to unlock the huge unrealised value of enhanced oil recovery, nor will they be able to overcome the emergent geophysical and environmental hurdles.

These points suggest the following policy prescription. The market needs to be given freer rein, subsidies need to be reduced, demand management and energy efficiency needs to be strongly emphasised, and technology and innovation has to become the centrepiece of strategy.

The author is chairman of Shell Group in India. These are his personal views