World Oil Outlook: Some Policy Implications for India

Abstract

The year 1973 was a watershed in the history of energy. That year the Organisation of Petroleum Exporting Countries (OPEC) took the momentous decision to raise the price of crude oil multifold resulting in the worst energy crunch in recorded history. The trend which the OPEC decision set in motion continued unabated and by 1980–81 oil was sold at a price about five times as that of 1972. The unprecedented rise in the price of oil resulted in a world-wide search for alternate sources of energy and for knowledge to conserve the non-renewable sources of energy that were heading slowly but steadily towards depletion. But although research is under way for an alternate cheap source, oil is likely to remain one of the most important sources of energy during the foreseeable future, and its high cost, in spite of the latest indications pointing at a sustained glut in the oil market,1 would continue to constrain the economic development in a major part of the world. It is against this background that the present paper purports to analyse the world oil outlook, assess the possible repercussions of the current oil glut on the Indian economy and gauge its implications for India's foreign and energy policies. Since the beginnings of the nineteenth century the chief sources of world's industrial energy have been fossil fuels, mainly coal, oil and gas, all of which are non-renewable. For centuries coal had provided the most popular source of energy, but since the Second World War the trend started changing and by 1960, coal on the one side and oil and gas on the other emerged as almost equally sought after sources of energy. Ever since oil and gas steadily replaced coal the former occupied 62 per cent and coal 30 per cent of world's total energy supply. Table 1 would illustrate the point.2 The reasons why oil and gas emerged as chief sources of energy was its cheapness, easy availability and the vastness of its utility. There have been sustained efforts, particularly after the 1973 oil crisis, to discover alternate sources of energy. For decades it has been considered by many that nuclear energy would replace oil. But the proliferation of nuclear reactors are raising questions whether proper safeguards are being maintained or not. In addition, costs are also prohibitive. Save a few industrially developed countries, in no third world country has nuclear energy become a major input for electricity generation. Even India which has a fairly long record of nuclear research gets only two per cent of its electrical power from nuclear energy.3 Similarly, solar energy as a source has yet to be a commercially viable proposition. However, it is expected that countries with technological capabilities and financial resources will be able sooner or later to make a significant breakthrough in these fields. But while it is important to explore possibilities for the development of energy substitutes, it is probably important to conserve oil so as to have a secure energy source during the transition period. This means increased energy efficiency which has been called “productive conservation.”4 Although growth of conservation is not as satisfactory as it should have been, considering the magnitude of the problem, yet it is increasingly gaining in importance and consequently emerging as a specialised field of research and training. In many segments of American industry, a new profession of “energy manager” is growing in status and importance.5 But while the United States and other developed countries of the West appear to be making significant progress towards conservation, it has been alleged by the OPEC that many of their measures are directed towards conservation of their indigenous supplies and not foreign ones.6 From the foregoing discussion it appears that oil is and will continue to remain a very important source of energy. Hence it is imperative to assess the word oil situation so as to enable one to gauge its implication for the Third World in general and India in particular.