Plans to overcome energy crisis

Oil prices soared to record levels in recent years, basic economics suggested that consumption would fall and supplies would rise as producers drilled for more oil. But as prices flirt with $144 a barrel, many energy experts are becoming worried that neither seems to be happening. Higher prices have done little to suppress global demand or attract new production, and the resulting mismatch has sent oil prices ever higher.

But for a variety of reasons, including sharply higher drilling costs and a rise of nationalistic policies that restrict foreign investment, these countries are failing to increase their output. They seem stuck at about 50 million barrels of oil a day, or 60% of the world’s oil supplies, with few prospects for growth.

What is disturbing here is that things seem to get worse, not better. These high prices are not attracting meaningful new supplies. The outlook for oil supplies signals a period of unprecedented scarcity. Oil prices might exceed $200 a barrel by 2012. Some regions are simply running out of reserves. Norway’s production has slumped by 25% since its peak in 2001, and in Britain, output has dropped 43% in eight years. Production from the giant Prudhoe Bay field in Alaska has dropped by 65% from its peak two decades ago.

What is disturbing here is that things seem to get worse, not better. These high prices are not attracting meaningful new supplies. The outlook for oil supplies signals a period of unprecedented scarcity. Oil prices might exceed $200 a barrel by 2012. Some regions are simply running out of reserves. Norway’s production has slumped by 25% since its peak in 2001, and in Britain, output has dropped 43% in eight years. Production from the giant Prudhoe Bay field in Alaska has dropped by 65% from its peak two decades ago.

The petroleum ministry is taking some initiatives as a strategy in planning a conclave of top energy officials and honchos of oil companies from Central Asian countries and Russia, the biggest crude producer outside the Opec cartel later this year.

The move forms pat of a policy to use oil as a diplomatic tool for building energy security be developing supply sources away from volatile West Asian markets.

Key countries from the Caspian and Central Asian regions such as Kazakhstan, Turkmenistan, Uzbekistan and Azerbaijan, and Russia will be invited. The India-CIS Round Table has tentatively been set for November 21 but may be changed as Turkmenistan has scheduled a ministerial round at the same time. India’s ambassador to Turkmenistan is being roped in to clear the air.

In an era when policy initiatives don’t last beyond the tenures of individual ministers, it speaks volumes about the strengths of the idea that Mani Shankar Aiyar’s successor Murli Deora is willingly carrying forward.

As the UPA oil minister, Aiyer stated it all. he first hosted a ministerial summit with West Asian exporting countries, including Saudi Arabia, and four Asian buyers. This earned it the sobriquet Mini OPEC. The second was with Central Asian and Russian suppliers and the Asian buyers.

Last year, Deora hosted the India-Africa Energy summit. While Africa is the latest hunting ground for Asian economies, Central Asia and Russia have historically been coveted for their hydrocarbons treasure. Due to its geographical proximity, China enjoys an advantage over India in tapping Central Asian resources.

But recent shifts in geopolitical equations can remove transportation hurdles that have kept India away from Central Asian oil/gas despite its cultural affinity with the region. One, improvements in ties with Pakistan and Afghanistan has brightened the prospects of the gas pipeline project from Turkmenistan. Two, upswing in ties with Israel and Turkey also opens prospects of nearly halving distance for shipping Central Asian or Caspian oil through the Eilat Ashkelon (Israel) and the Baku Tbilisi – Ceyhan (Azerri Turkish) pipelines.

Naturally, the round table is expected to focus on joint or cross investments – India investing in fields and facilities of the producing countries, and the suppliers investing in refining and gas in India. India is in talks for a stake in fields of Kazakhstan and is trying to establish a footprint in refining pipelines and LPG bottling in Turkmenistan, Uzbekistan and Azarbaijan. In Russia, it has equity in Sakhalin-I and is keen on stakes in upcoming exploration, refining gas and petrochemicals projects.

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