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.
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.