Supply Pacts, Foreign Asset Buys Only Way to Beat Energy Crisis

Although policy makers and industry professionals have been talking about long-term energy security for quite some time now, with a few steps having been taken, given the economic slowdown and weak oil demand which has kept oil prices depressed, the next couple of years offer a good window for India to acquire overseas assets and to link long-term supply contracts.
Afailure to do so may force the country to import high-cost energy which can slow down economic growth. Predicting oil prices is no doubt a hazardous game, but still economists try their hand at figuring out at least the broad patterns. The recently published ‘Annual Energy Outlook 2013’ by the US Department of Energy makes a case for the benchmark Brent crude oil prices to trade around $96 per barrel by 2015 compared to an average of $111 in 2012. Post that oil prices will resume their upward trajectory to reach $269 by 2040. The expected weakness over the next three years is mainly the result of the economic slowdown in the West, growing unconventional production of oil such as shale oil or oil sands, natural gas replacing oil demand and increasing use of energy-efficient technologies in western countries. Nevertheless, the growing oil consumption from Asia, Middle East and the African nations apart from the dwindling production from ageing fields will at some point reverse the downward trend in oil prices. It is imperative for India to make the best of this phase, since its energy consumption is growing very fast. “The primary energy consumption of the world is expected to grow 1.6% annually from 2008 to 2035; whereas India’s primary energy consumption is expected to increase at 3.2%,” according to a PwC recent knowledge paper.
Vikram Dhawan, director, Equentis Capital — a UK-headquartered analytics and research firm put things in perspective. “Population in Japan is almost 1/10th that of India; however Japan consumes 30% more oil than India. This is despite the fact that oil consumption in Japan has declined by around 20% in past decade. If the current trend continues then India should overtake Japan in terms of oil consumption within the next decade .”
On the other hand, the global scenario in the petroleum industry is changing fast. US, the world’s biggest consumer, is seeing its petroleum consumption inching lower while its production through shale oil is slated for a rapid
    growth. The country’s
    energy production growth rate has outstripped the consumption growth rate.
China is emerging as the new influencer on the global energy economics front. It has long been making concerted efforts at securing its long-term energy future, furthered its reach as state-owned petroleum behemoth CNOOC recently acquired Canada’s Nexen for a stunning $15.1 billion. Back home India doesn’t have too much of its own hydrocarbon reserves. The proven oil reserves in the world at the end of 2011 were 234 billion tonnes, which are sufficient to meet 54.2 years of global production. On the other hand, India has oil reserves to meet its demand only for 18.2 years. Similarly, the domestic proven natural gas reserves are worth only 27 years of production, according to the PwC report. This means the country’s long-term energy security will depend on imports in the foreseeable future.