Financial Daily
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Thursday, October 19, 2000



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The oil predicament

Ratan Dayal

THERE is a great deal of interest these days in the augmentation of oil exploration and production activities against the backdrop of high crude prices and the rising gap between indigenous supply and demand.

At over $30 a barrel and production meeting only 30 per cent of requirement, the case for more investment in this sector is strong. At the same time, the magnitude of the investments involved merely to achieve 30 per cent self-sufficiency for the future years is mind-boggling and compels one to wonder if this is the most cost-effective way of meeting the energy demand.

About 10-15 years ago there existed an Energy Co-ordination Commission whose objective it was to set priorities between oil, coal, gas and non-conventional sources. That body was wound up, unhonoured and unsung, and not replaced. The result is that today the protagonists of each of these energy sources are proceeding with their own development programmes as best they can, regardless of what the others are doing. It could be argued that given the hunger for energy, it may not be a bad thing but the fact that resources are limited is ignored.

My fear is that a laissez faire pattern of development, as we appear to be following, could result in serious irreversible imbalance in the funding, cost-effectiveness and development of the different energy sources at our disposal to the ultimate detrim ent of the country.

The questions that spring to mind and need to be addressed seriously are: Why should Rs 4,000 crore per annum be spent on oil exploration and production (E&P) if our proven reserves for oil and gas are only 0.5 per cent and 0.6 per cent respectively of t he world's reserves.

If our reserves are so small and exist in difficult terrain (Bombay High, Gujarat and Assam having creamed off the most prospective fields), should the emphasis of our E&P activity not shift to acquiring acreage abroad, say, in Kazakhstan, Iraq and Vietn am rather than flog a half-dead horse at home? Let us produce all we can from existing wells, but if our domestic prospects are not particularly bright, let us also consider greener pastures abroad where, in a shrinking globalised world, acquisitions and mergers are the order of the day. Thus, the initiatives taken with liquefied natural gas (LNG) are obviously a welcome step forward.

Another pertinent question is: Why are we not relying more on coal, given that we have reserves for over 100 years. Surely, if the coal deposits are low-grade and largely located far from the centres of demand, these disadvantages can be mitigated by set ting up more washeries to remove the ash content and adjusting freight rates to counter the tyranny of distance. Proven reserves of coal should be exploited rapidly rather than the unproven reserves of oil.

Tata Energy Research Institute (TERI) has done commendable work on comparative energy costs and sources, as also the Energy Cell in the Planning Commission, and the National Council of Applied Economic Research (NCAER), but they should exist under one ro of for easy reference to facilitate the decision-making process.

More baffling is why more time, money and effort are not expended on non-conventional energy. With a land mass as large as ours situated between the Tropic of Cancer and the Equator, it would seem that we have the ideal conditions for solar energy system s. Likewise for wind and tidal energy, considering the length of our coastline. The reality, however, is that interest and investment in non-conventional energy sources invariably dwindle when oil prices drop, whereas what is required is a dedicated sust ained programme for some decades to wean the country away from its heavy dependence on vanishing fossil fuels. Implementing this now is better than later.

Consider the prospects for nuclear energy. If France can generate 25 per cent of its energy from nuclear sources, why is India's restricted to about 20 per cent? If the fears centres on the harmful effects of a nuclear fallout, surely effective safeguard s can be devised. Of course, the high unit cost is another matter.

It goes without saying that our moral duty is to conserve every drop of oil possible. Since we Indians are notoriously lax about rallying to moral obligations, some deterrent against wastage should be built into the fiscal system to achieve this end. It is not enough for the Government to exhort its employees to use less fuel. It should be implemented effectively through a fiscal reward-and-punishment system applicable to the public and private sectors. It is essential that these ideas are examined holi stically so that we get the best value for money.

(The author is Managing Director, Shell India Production Development B.V. The views expressed are personal.)

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