Possible choices for India in view of the impending "oil crunch"

A case for Oil Purchasing Rights (OPR)

Suggestions for a distinct, definitive leadership role internationally for India


Maj. Gen. (Retd) S. C. N. Jatar


Petroleum is running out:


1.                                          Petroleum is a finite resource.  Its current rate of consumption (80 million barrels/day) is close to the production capability of the exporting countries.  The rate of growth of demand for imported liquid petroleum is around 2.5% + in the USA, just below 2% in Europe and Asian tigers, and considerably greater in China.  South Asia too has a high rate of growth, although the base level is low.  The probability of finding giant oil fields is slim.  This would mean oil-exporting countries would not be in a position to increase their exports at 2% or more per year. 


2.                                          U.S. production peaked in 1970, Russia in 1986 and North Sea in 2003.  Chinese production would peak in 2005-2006, Mexico in 2007 and Canadian towards the end of this decade.  OPEC production is likely to peak between 2025 and 2030.  Oil reserves are declining although production may rise.  The reserves replacement ratio is now generally negative.  A worrisome scenario is by Duncan-Deffreyes that world oil production will reach its all-time peak in 2006.  Then from its peak in 2006 to year 2040 world oil production will fall by 58.8 %. 


3.                                          Oil and gas are running out faster than the vast majority of people realise and this will have seismic consequences for the whole world.  Even by the year 2005, oil will start to become in short supply, prices will start going up and politicians will opt for the nuclear energy option - with all the consequences that this option implies.  Oil shortages will surface, Kyoto agreements will be impossible to follow and oil wars, which already span the globe, from Angola to Chechnya, will only get worse as the need for cheap oil will dominate the world's political agenda (The Final Energy Crisis, Edited by Andrew McKillop). 


4.                                          Liquid petroleum is likely to be the first area of crisis; natural gas could last (a decade or so) longer before supply limits the demand.  Natural gas is not easily stored and there are strategic reasons for not depending wholly on gaseous fuels. 


High oil-price scenario


5.                                          Unfortunately, the most oil-intensive countries (e.g. most developed nations) generally refuse to consider any reduction in their oil burn, or prefer, like the USA, to threaten oil-exporting countries with invasion, which in itself is a destabilising factor resulting in high oil prices. Thus, the only countries able to increase their oil export supplies (mainly OPEC) are under political, financial and domestic pressures.  West Asia today is unbalanced because Iraq and Saudi Arabia are destabilised as a direct result of US invasion of Iraq. 


6.                                          Run-away oil prices would certainly precede the peak of net production of hydrocarbons because of physical shortage of oil and gas, and not necessarily due to the falling reserves that may not in the long term, satisfy world oil demand.  The industry would then abandon the present pricing system after the price reaches $100 per bbl.  Robert Mabro has discussed this possibility in the Oxford Energy Studies.  These radical thoughts have crossed Mabro’s mind although he is a champion of the “free market system”. 



India’s role:


7.                                          India could play an enabling role to change attitudes and approaches to facilitate nations to make-do with lower consumption of hydrocarbons and to make it possible to transit smoothly to alternate fuels.  India is well placed for that role [large country, oil importer, fast economic growth, alert and intelligent mass media, broadly dispersed middle-class capable of adapting to new conditions and a track record of North-South initiatives (led, incidentally by the present Prime Minister for some years from Geneva)].  The reformed system should permit poorer countries to obtain supplies of hydrocarbons at stable and predictable prices for sustained infrastructure development. 


8.                                          There are many national, territorial, political, ideological, trade and other disputes and differences between India, China and Pakistan, but their oil consumption per capita, although rising fast, is minuscule compared to USA, France, Japan, Germany and UK.  There are therefore good potentials for South-South cooperation and South-South initiatives for resolving the looming crisis. 


The transition to alternate energy


9.                                          Any sudden or rapid reduction in India's oil burn would be disastrous, both economically and socially.  This may not, however, be the case for EU countries, Japan or the Asian tigers (which could easily achieve a 30% reduction in per capita consumption within 1-5 years), or the USA (which could achieve a 50% reduction in per capita consumption before it approached European rates of consumption). 


10.                                      Reducing oil consumption rapidly of the most oil-intensive countries, will buy time to put energy transitions in place.  The Kyoto Treaty predicates large reduction of hydrocarbon consumption for countries, which have ratified the Treaty. 


Oil Purchasing Rights (OPR):


11.                                      India should evolve a system like the IMF Special Drawing Rights system (SDR) for world oil allotment, known as Oil Purchasing Rights (OPR).  The allotment of OPR would be depend on current oil-intensity, per-capita GNP, and energy needs, together with verifiable national plans for long-term reduction of oil-dependence and consumption.  For richer countries, OPR should additionally have a linkage to their Kyoto Treaty obligations.  The aim is to ration the limited global oil resources so that they last longer, are available at an affordable price and would give adequate time to develop alternate energy resources.  Rationing of oil should be on a global and organized basis, in a framework somewhat like the Kyoto Treaty.  We would then achieve peak consumption before peak production of hydrocarbons. 


12.                                      OPR would help conserve the remaining oil, and to use it, even in the long term, to produce essential chemicals and pharmaceuticals, and to build durable and sustainable infrastructure.