ISSN 2330-717X

India: Price Increase Of Petrol And Diesel Inevitable – OpEd

By

The price of petrol and diesel for the consumers have now reached the highest level so far in India. The media and several political parties are accusing Narendra Modi government for the steep price rise, as if it is responsible for this situation.

Obviously, the angry and pledged critics do not care to see the ground realities and the real basic reasons for the price increase. If there would be good understanding of the fundamental causes for the present scenario, there would be constructive debate on the subject, instead of throwing mud at the face of the Modi government.

Stagnant crude oil production in India

India’s production of crude oil is now nearly stagnant at the level of around 36 to 37 milion tonne per annum. The production is fluctuating from one year to another but it is certainly not significantly increasing. As the exploratory efforts to open new oil wells are continuing, the production in the existing wells are inevitably declining.

The efforts of Modi government to take up exploratory efforts for new oil wells are being resisted in several places. The most recent agitation against the crude oil exploration was at Neduvasal in Tamil Nadu, where the government has been forced to give up it’s exploratory efforts. Those who are complaining about the price increase of petrol and diesel are the same people who are blocking the new exploratory efforts to boost the crude oil production.

Rising import of crude oil and consumption

Indian import of crude oil is now well over 220 milion tonne per annum and the import has been increasing at the rate of 7 to 8% during the last several years.

The consumption of petrol and diesel are steadily increasing , which has to be necessarily met by increase in import of crude oil to produce petrol/ diesel in the petroleum refineries. The automobile sector has a significant share of petrol and diesel consumption in India and nobody is willing to curtail the use of automobile to the extent possible.

World consumption trend

World consumes around 90 million barrels per day of crude oil and the consumption has been growing at around 0.7% per annum for the last several years. Given such growth rate, the global consumption of crude oil would reach around 92 million barrel per day in 2020 and 97 million barrel per day in 2025. Obviously, the world crude oil production has to be stepped up to meet the increasing demand.

Transportation is the pre eminent consuming sector of energy in the world, which is using around 60% of the overall oil consumption in the world. This trend is unlikely to come down significantly.

World production trend

The global crude oil price fall during the last several months has been largely due to the steep increase in the production of shale oil in US in several regions including North Dakota and Texas. While the shale oil production in USA has jumped several fold, the life of the shale gas wells is less than twelve months in several cases and shale oil from US by itself cannot sustain the world supply to the required level.

Around 40% of the world crude oil production is carried out by OPEC and 60% by the non OPEC suppliers. While non OPEC suppliers are larger than OPEC, they have virtually no spare capacity.

Global exploratory efforts

The grim fact is that the global exploration efforts for crude oil have considerably slackened in recent time. Due to the recent fall in the crude oil price, more than one hundred oil and gas companies across the world have increased net debt by several billions of US dollar, as their revenue from oil and gas sale have reached a plateau. The exploratory companies say that they have exhausted traditional oil fields and are being forced to explore fields in ever more difficult regions. In such condition, the new exploration efforts of several multi national gas companies are facing uncertainties and hurdles, which would tell upon future additions to the oil and gas production in the world.

Price trend

While global price of crude oil have been fluctuating due to several reasons such as erosion of spare capacity in entire oil exploration chain, geopolitical uncertainties in oil producing countries and falling exploratory efforts and speculative trends ,there is no doubt that the incidents of fall in price of crude oil in the coming years would be less frequent due to temporary reasons and incidents of rise in price of crude oil would be more frequent due to basic and fundamental reasons as outlined above.

India in helpless situation

India, with near stagnant domestic production of crude oil and steady increase in crude oil import, is highly vulnerable to the international crude oil price scenario.

As of now, government of India is helpless in facing the situation. Any government in India will inevitably face such situation in the coming years also.

Critics of the recent diesel and petrol price rise in India argue that the government should slash down the excise duty on petrol and diesel and give up it’s revenue to some extent to reduce the price of petrol and diesel. In today’s conditions, even if the government would do this by sacrificing it’s revenue to some extent, the impact on price fall of petrol and diesel, would be only by around Rs.10 to 15 per litre, as the government has the option of reducing the duties only to a limited extent , as it cannot reduce it’s income drastically.

It should also be noted that in spite of the steady increase in price of petrol and diesel during the last few years, the consumption of petrol and diesel has been increasing in India,particularly for transportation. Can one say that this scenario indicate the affordability of the consumers to pay high price for petrol and diesel for transportation these days?

The Modi government has certainly been taking steps to find alternate source of energy such as solar and wind power. In the last four years, the capacity of solar power generation in India have been increased from 1500 MW to around 23,000 MW now, which is a remarkable achievement. The capacity of the wind power has also gone up substantially. But, all these have only limited impact, in view of the very large requirement of energy., which is being met by petroleum resources now.

Need for knowledgeable debate

It is high time that the Indian media and the politicians should realize that diesel and petrol price increase in India will be inevitable in the coming years and one need not be surprised and shocked, if the price of petrol and diesel would hit Rs. 100 per litre sooner or later and perhaps, sooner than later.

Certainly, petrol and diesel price scenario in India call for responsible, well-informed and constructive debate and not the type of chaotic discussions and debates based on political interests, that we have in the media now.


Enjoy the article? Then please consider donating today to ensure that Eurasia Review can continue to be able to provide similar content.


N. S. Venkataraman

N. S. Venkataraman

N. S. Venkataraman is a trustee with the "Nandini Voice for the Deprived," a not-for-profit organization that aims to highlight the problems of downtrodden and deprived people and support their cause. To promote probity and ethical values in private and public life and to deliberate on socio-economic issues in a dispassionate and objective manner.

3 thoughts on “India: Price Increase Of Petrol And Diesel Inevitable – OpEd

  • September 5, 2018 at 6:08 am
    Permalink

    The author should first answer a few simple questions to elaborate and support his premise. First, why are locals resisting the push for well exploration? Is it because they fear losing their land to well entrenched corporate interests and corporations without receiving suitable compensation? Do they fear environmental degradation and its future consequences which India has more than a few cases off?

    On the global stage, how can India be in such a precarious situation when it shares such a close strategic relationship with the US ( as evidenced by hugs, photographs and selfies of Modi sarkar). Is it telling the world it cannot negotiate a medium term agreement with US producers to regulate oil import prices. God forbid President Trump not having a single friend in the oil producing industry ,the much touted partnership isn’t worth the paper its printed on. And as a side point, US shale production is not plateauing; its increasing because of advancement in new technologies, production techniques and effective management. Add to this, the close partnership touted by Modi sarkar with Saudi Arabia and other ME countries so oil production should not be an issue for India and its ‘strategic positioning’.

    Some critical questions for the authors next piece instead of bemoaning the fate of the poor beleaguered Government.

    Reply
  • September 6, 2018 at 5:37 am
    Permalink

    Excise duty has been increased 9 times in 4 years and it is ad valoram. The state taxes are also advaloram. That means the govt. gets more revenue as the fuel price increase.

    The effect is lesser amount with the citizens, savings as well as spending. Inflationary trend on all daily consumption needs. Agriculture costs go up. Public transport do not increase rates and go into losses. Railways are going to show whopping losses for the present. All airlines are on dire straits. besides air india another one is on verge of bankruptcy.

    Goods transporters start a trip at fixed cost and in 4-10 days lose Rs 400-1000.

    I suppose the policy is less the money in peoples pocket they will be careful and not ndulge in wasteful expenditure.

    Reply
  • September 6, 2018 at 6:33 am
    Permalink

    My name is Prof. Ponnani and I live in Tharakkad village in Palakkad. I have some experience in Gujarat in working with oil exploration companies like ONGC in Gujarat and OIL India Limited in ASSAM.

    I have no objection to keeping my name and email address in open domain as I stand by my comments. The key is to express your comments in a constructive and convincing way without resorting to attacking and abusive way. Please remove this statement that your email address will not be published. It encourages people to be anonymously sarcastic and opinionate without accountability.

    Now coming to the points raised by “an informed citizen”, I feel that the resistance to oil drilling activities in my backyard or my own land is genuine and should be addressed seriously.

    The people who are organizing the public should look at the experience of villagers and farmers in Gujarat, Barmer in Rajasthan and Assam, Meghalaya and such areas where the companies like ONGC , Cairn Energy and OIL India are peacefully and successfully tackling difficult drilling operation and the impatience of people I call STAKE HOLDERS. After analyzing this interface between corprates and commoners, these advisors should evolve a strategy to solve this difficult problem of society’s needs conflicting with effect of this collateral damage on a section of society humanely.

    As a member of Parayavaran Suraksha Samiti, I was a part of an agitation by the public in Ankleshwar Narmada estuary where ONGC had been discharging reservoir water into Narmada River which contained Mercury to an unacceptable level. We had a difficult time and went to court and got a good response which closed down ONGC operations for two months.
    But to be fair to ONGC, they listened to professionals like us and have ensured that the reservoir water is pumped back in to the earth more than a few hundred meters well below the fresh water courses at shallow depths to avoid contamination.

    Science and technology have answers if only we approach a problem with open mind and with a will to arrive at a workable solution and not fight politically for the sake of a few brownie points.

    The answer for Petroleum import in to India lies in exploiting our coal deposits using imaginative science and technology. Distributed coal to syngas technology with Hydrogen separation and use in fuel cells or gas mixtures and using Carbon monoxide to run gas turbines is a safer and more local ways to reduce our import as we have proven coal resources, albiet lower grade coal for the next few hundred years. We can also move to Methanol/DME economy and also Fischer Tropsche technology to keep our end use characteristics of technologies in tact and more efficient.

    Solar thermal and wind and wave will of course contribute significantly but for short term, we need coal based science and technologies to reduce import.

    Such diversified actions and implementations with public understanding and support is the best way forward.

    In a platform like this, let us have constructive suggestions to add and expand what Mr. NS Venkatraman has written and not just criticism and rhetoric questions. I have been his friend for more than 50 years and admire his fair and balanced approach to difficult situations that society faces time and again – Hobson’s choices I personally hate them but cannot avoid them and will have to choose carefully every time. Democracy can do with a bit of tonic called Science and technology.

    Thanks for the platform

    Prof. KN Ponnani
    9545513347
    7/383 Sivan Kovil Street
    Tharakkad Palakkad Kerala 678001

    Reply

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.

CLOSE
CLOSE