By 1950, most of Western Europe and North America was dependent on crude imports. When OPEC raised prices in 1973, First World countries started looking for greater energy efficiencies. |
By 1979, when the second oil shock occurred, these nations were better prepared. Even so, it wasn't until the mid-1980s that growth completely recovered. |
India was as badly affected as any other import-dependent country. The "Hindu rate of growth" through the 1970s was largely due to boneheaded policies that absolutely failed to combat rising oil prices. |
Oil markets work according to the laws of supply and demand. At any price, there exist reserves that are too expensive to tap. Prices increase; companies start exploiting expensive reserves, supply increases, demand declines. |
But oil is a finite commodity. Exploration techniques have improved to the point where vast new reserves have been proven. Every timebound projection about diminishing oil supplies has proved inaccurate. |
Nevertheless, one day, oil will run out. Also, most oil-exporting nations are politically unstable "" perhaps because they are oil-exporters! |
Exporters like Iraq, Saudi Arabia, Russia (due to the Chechnyan insurgency), Iran, Nigeria and Venezuela all carry high political risks and the industry lives with periodic, unpredictable supply disruptions. |
India will remain an energy import-dependent economy and see the dependency increase. Domestic oil production has been stable for the last decade while GDP growth has added around 5 per cent per annum to domestic petro demand. |
The economy could still maintain high growth rates. One possibility is through building surplus refining capacity and exporting more refined products. This is already happening to an extent. The last financial year's gross crude import bill showed a rise of 9.5 per cent to Rs 83,700 crores from about Rs 76,500 crores in 2002-03. |
But the net import bill rose only to around Rs 77,500 crores. Refined product exports provided the cushion. Since Indian refineries are aiming to add 50 per cent to overall capacities over the next 5 years, exports ought to grow. And, Indian refineries are low-cost producers capable of maintaining margins in an era of high crude prices. |
Another possibility is through a switch to less expensive, more easily available alternative sources of energy. Gas is one obvious answer "" anything that runs on a petro-derivative can run on gas. India currently has a big demand-supply gap in gas sector. |
But domestic supplies could double over the next few years as new finds like the Reliajnce strike in the Krishna-Godavari Basin come onstream. India has also belatedly started developing the infrastructure for gas import and distribution. This would insulate the economy a bit from crude fluctuations. |
Naturally, it would help if viable, renewable sources could be discovered. Fuel-cells or windmills or gasohol: anything that makes the nation less petro-dependent could prove useful in the long run. |
Another imperative is developing better efficiencies -India is extremely energy-inefficient. The big offender is the power sector; without reforms in power, energy-efficiency cannot improve. |
Any Indian company that is a player in any of these areas "" production, refining, gas imports and distribution, renewable energy, etc "" is likely to be a winner in the next decade. There is a caveat "" the above statement will hold true only if the government makes decent policy. |