Mr. B M Bansal,
Chairman,
Indian Oil Corporation Ltd.
What will happen if crude oil prices go beyond $100 a barrel? As a matter of fact, crude oil price has breached the $98 per barrel mark several times already this month and is already within striking distance of the $100 per barrel mark.
The last time when crude oil crossed the $100 mark and went up all the way up to the historic $146 mark (in July 3, 2008), it created ripples worldwide. The bad news came in the backdrop of a global recession. It has been seen time and again that the demand and supply dynamics of crude oil is complex and no one can hazard a guess. But one thing is certain. The days of cheap oil are long gone. There will be volatility in prices and uncertainties in production even as big emerging markets have started a consumption pattern that most resemble the developed countries at the beginning of their growing curve. But the cruel reality for the poor and developing countries is that the price of energy is only going to go up unless some drastic steps are taken to find affordable alternative energy sources.
India needs more and more energy to meet its growing needs. Any increase in energy demand directly impacts the oil import bill for which, we do not have any control mechanism. Indians enjoy a treasury cushion that shields them from the impact of volatile international prices of energy. But in the long run, it encourages wasteful consumption of precious energy and reduces efficiency.
Therefore, the rise in crude prices are necessarily to be passed on to the end consumer. Since our current lifestyle is largely dependent on liquid fuels, slowly we are getting addicted towards it. Any measure to control the prices would increase the demand and, therefore, have inflationary impacts.
Even now, the oil marketing companies (OMCs) are continuing to incur huge amounts of under-realisations on the sales of other sensitive petroleum products, viz. diesel, kerosene and LPG (domestic). Even at the current prices Indian Oil is incurring an under-realisation of about `159 crore per day on the sales of these three sensitive products.
These are essentially figures that carry a significant amount of weight for an oil import dependent and energy hungry, growing nation like India. If the price of crude oil goes up, will we constrict buying and start saving? Well, that will depend upon our collective response as a nation.
The OMCs have always shown an undying commitment to the nation. At the same time we operate in a commercially-linked and economically evolving world. Without a predictable pricing regime, the OMCs would find it impossible to even plan for the short-term, leave alone sustain a highly capital intensive long-term business. In the light of the uncertainty due to price restrictions, the OMCs are unable to plan for the future of over a billion Indians. There are geo-strategic imperatives of 'oil security' for a country that is still dependent on imports for oil and there is an urgent need to invest in energy resources in India and abroad.
As a growing nation ready to be catapulted to the club of world's economic superpowers, India and its people need to take a long term view of a resource as precious as oil, and use it optimally. For this to happen, it is important that duty structure is rationalised and there is complete pass-through of the international prices to the consumers. We need to effect attitudinal changes as far as respecting the value of energy goes.
Notwithstanding widening the basket of energy sources or the healthy prospect of alternative fuels coming of age in the future, it is indeed important to understand as a nation that wasteful consumption is an anathema.
