February FinOpinion
India’s energy security and geo-political fallouts
(non-technical article)
Abstract: Global realities of 21st century have added newer dimensions to the definition of national security and increasingly energy security is gaining greater importance over the other components of national security. India being at the forefront of the emerging economies is increasingly feeling the importance of having a long term strategic energy security policy to sustain the economic growth through uninterrupted supply of essential energy resources. This has led to a radical change in its policy towards investing in foreign energy assets (mainly oil fields and natural gas fields) and gaining foot hold in regions which are diverse in terms of culture, religion and political affiliation. This article aims to explore the reason for this new shift in India’s energy policy and geo-political games that are being played out by different players.
India’s total oil bill for the year 2003-04 is $20.3 billion dollar that’s an increase from $17.6 billion dollar that we forked out last year. Now there are two factors that have contributed to this increase in oil bill. One most obvious reason is the increased International Oil Price. However the reason which is perhaps more fundamental and long term in nature is the growth that Indian Economy is experiencing. With an annual average growth rate of 7-8% it is obvious that India’s energy demand is also going to follow her economy closely. Now the big question is do we have a sustainable long term strategy in place which is going to ensure us that there will be no shortage of this essential body fluid of economy i.e. Oil in coming days, so that our economy can experience a continuous growth for the next few decades without really bothering about energy being one of the constraints? The answer is a big NO. However if we put the question in this way that “are their any initiatives that are being taken by India in recent days to address this issue”-the answer will be a big YES. I will come back to those initiatives later but before that let’s try to answer one question. The question is why we are all of a sudden so desperate to secure our energy supply? There are quite a few reasons that can be lined up.
With demand for fuel growing rapidly in China, India and other developing nations, the world is entering a period of runaway growth in demand for fossil fuels, at the same time; growth in the supply of the most desired fossil fuel - oil - is slowing. No major oil fields have been discovered in nearly three decades. And despite record revenues, oil companies are barely increasing their production capacity. As a result the price of oil is going to be primarily northward moving at least for most of our life time with occasional short term downward movement for seasonal adjustments. Secondly, the world for long has been too dependent on Middle East as the prime source of oil. The nation's intransigent addiction to oil and gas has entangled us in the long-contentious Middle East, whose oil field countries continue to try to dominate, at great cost in lives and fortunes. The over dependence on one particular region for such a precious commodity is fundamentally unstable and giving rise to speculative premium to oil price. So whenever a single bullet is fired in Middle East oil price has a chance to move upwards. This whole situation is really making the life of countries like India, China and Brazil extremely difficult. Because on one hand these countries are experiencing explosive growth rate which makes the demand for oil higher and higher and on the other hand being a net importer of oil, their net oil bill is also increasing thereby becoming a major resource drainer which could otherwise be saved and used for other purposes. So what is the next best thing to do? Well off course diversify and hedge yourself against uncertainty and major economies around the world are right now doing just that only by investing heavily on alternative sources of oil spread throughout the world namely Sudan, Libya, Russia etc. And India is also participating in that diversification exercise through the state owned oil majors, mainly ONGC Videsh. In the last two years this particular arm of ONGC is actively bidding for the rights of foreign oil and natural gas wells and has been quite successful in getting the development and exploration rights of oil fields in Libya, Sudan and Russia. Now the entire bidding exercise is more of geo political gamesmanship rather than pure money based decision making. So the countries which are involved here are redefining their existing relationships to break grounds. For example US lifted the sanction on Libya and it’s not a surprise that very soon majority of the development rights of Libyan oil fields went to US Companies. On the other side Russia after the Yukos fiasco and US adverse reaction to that is not too keen on giving rights to US giants and is looking more favorably to Indian and Chinese giants even at an economic cost. India is also clubbing bidding offer with better market access and political affiliations. It is also planning to team up with one time enemy China to bid jointly for oil wells. In this great battle of energy security the battle lines have just been drawn. Past animosities are becoming new found friendships. Newer world orders are emerging and India being an active player in this is gaining quite a lot of traction and attention in the entire exercise. As the events are unfolding we are witnessing more of newer strategies which has long term implication for our country not only in securing energy but also in defining relationships with friends. Let hope we emerge as a winner here.
Ref: http://www.ongcindia.com/
http://economictimes.indiatimes.com/articleshow/998680.cms http://www.list.org/~mdoyle/issues.html
India’s total oil bill for the year 2003-04 is $20.3 billion dollar that’s an increase from $17.6 billion dollar that we forked out last year. Now there are two factors that have contributed to this increase in oil bill. One most obvious reason is the increased International Oil Price. However the reason which is perhaps more fundamental and long term in nature is the growth that Indian Economy is experiencing. With an annual average growth rate of 7-8% it is obvious that India’s energy demand is also going to follow her economy closely. Now the big question is do we have a sustainable long term strategy in place which is going to ensure us that there will be no shortage of this essential body fluid of economy i.e. Oil in coming days, so that our economy can experience a continuous growth for the next few decades without really bothering about energy being one of the constraints? The answer is a big NO. However if we put the question in this way that “are their any initiatives that are being taken by India in recent days to address this issue”-the answer will be a big YES. I will come back to those initiatives later but before that let’s try to answer one question. The question is why we are all of a sudden so desperate to secure our energy supply? There are quite a few reasons that can be lined up.
With demand for fuel growing rapidly in China, India and other developing nations, the world is entering a period of runaway growth in demand for fossil fuels, at the same time; growth in the supply of the most desired fossil fuel - oil - is slowing. No major oil fields have been discovered in nearly three decades. And despite record revenues, oil companies are barely increasing their production capacity. As a result the price of oil is going to be primarily northward moving at least for most of our life time with occasional short term downward movement for seasonal adjustments. Secondly, the world for long has been too dependent on Middle East as the prime source of oil. The nation's intransigent addiction to oil and gas has entangled us in the long-contentious Middle East, whose oil field countries continue to try to dominate, at great cost in lives and fortunes. The over dependence on one particular region for such a precious commodity is fundamentally unstable and giving rise to speculative premium to oil price. So whenever a single bullet is fired in Middle East oil price has a chance to move upwards. This whole situation is really making the life of countries like India, China and Brazil extremely difficult. Because on one hand these countries are experiencing explosive growth rate which makes the demand for oil higher and higher and on the other hand being a net importer of oil, their net oil bill is also increasing thereby becoming a major resource drainer which could otherwise be saved and used for other purposes. So what is the next best thing to do? Well off course diversify and hedge yourself against uncertainty and major economies around the world are right now doing just that only by investing heavily on alternative sources of oil spread throughout the world namely Sudan, Libya, Russia etc. And India is also participating in that diversification exercise through the state owned oil majors, mainly ONGC Videsh. In the last two years this particular arm of ONGC is actively bidding for the rights of foreign oil and natural gas wells and has been quite successful in getting the development and exploration rights of oil fields in Libya, Sudan and Russia. Now the entire bidding exercise is more of geo political gamesmanship rather than pure money based decision making. So the countries which are involved here are redefining their existing relationships to break grounds. For example US lifted the sanction on Libya and it’s not a surprise that very soon majority of the development rights of Libyan oil fields went to US Companies. On the other side Russia after the Yukos fiasco and US adverse reaction to that is not too keen on giving rights to US giants and is looking more favorably to Indian and Chinese giants even at an economic cost. India is also clubbing bidding offer with better market access and political affiliations. It is also planning to team up with one time enemy China to bid jointly for oil wells. In this great battle of energy security the battle lines have just been drawn. Past animosities are becoming new found friendships. Newer world orders are emerging and India being an active player in this is gaining quite a lot of traction and attention in the entire exercise. As the events are unfolding we are witnessing more of newer strategies which has long term implication for our country not only in securing energy but also in defining relationships with friends. Let hope we emerge as a winner here.
Ref: http://www.ongcindia.com/
http://economictimes.indiatimes.com/articleshow/998680.cms http://www.list.org/~mdoyle/issues.html
Prithviraj Deb
Business Management (2004-06)
posted by FINAX at
9:37 AM
0 Comments
