Energy insecurities

With global oil prices once again threatening to upset the recovery applecart across the world, the attention of governments once again focuses on finding ways to protect their economies from the anticipated turbulence.

While the panic button is yet to be pressed, there is clearly a strong body of opinion across the world that the current, rather gloomy scenario is likely to persist into the foreseeable future.

The long-term impact will be particularly severe on emerging economies like India, whose growth trajectory in the coming years will be increasingly energy-intensive.

Over the last few months, the petroleum ministry led by Mani Shankar Aiyar has been involved in several high-profile initiatives which, on the face of it, are intended to ensure that the country will not be held to ransom on energy supplies.

ONGC has entered into oil equity deals in Sudan and Russia and is scouting the world for more such arrangements. The idea of an overland pipeline bringing gas from Iran to India, through Pakistan, reflects the ambitious thinking within the ministry on the issue.

Bangladesh also offers a potentially large supply of natural gas, adding to a seam that appears to run a significant way down the east coast.

Phase V of the New Exploration Licensing Policy is being aggressively marketed around the world, with the objective of inducing new players to come and prospect in Indian territory.

Amidst all this activity it is necessary to occasionally take a step back and review the situation objectively. There is no question that energy security is of paramount importance and should be a priority objective for the government.

That having been said, it is not entirely clear how oil equity deals in countries like Sudan serve that purpose. By all accounts, Sudan is in a state of anarchy.

Business risks are probably too high for any private investor to want to expose himself to that environment. There are real questions about the ability of the system to honour and protect long-term contracts.

Under the best of circumstances, India may have unchallenged access to the oil in times of necessity, but if the likelihood of those circumstances not prevailing at any point in time is high, then in essence one risk is simply being substituted by another.

The impact on overall security is ambiguous. A similar argument can be made against the Russian arrangement. Perhaps the political risk isn't as high, but the logistics of getting the oil to India in the case of need could vitiate the contribution that is being made to energy security.

Other aspects of the approach are more justifiable. A neighbourhood policy based on energy considerations makes eminent sense. Likewise, encouraging global players of various kinds to explore domestic potential gives us control over the eventual discoveries.

One critical aspect of energy security that has not been given the prominence it deserves in the ministry's recent efforts is demand management.

Making every sector of the economy as energy-efficient as possible can contribute significantly to achieving the ultimate objective.