Saturday July 21, 02:41 AM
We need to improve energy efficiency |
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A recent report of the International Energy Agency (IEA), a watch dog of oil consuming countries, has created fears about oil scarcity which drove oil prices up to $75 (US crude) a barrel where they have been lingering since. It is the predictions about the future that are alarming.
The IEA has revised its forecast for growth in world demand for oil. From the expected 86.1 million barrels per day (mbd) in 2007, world demand would increase at 2.4 per cent per year to 95.8 mbd by 2011. The bulk of the additional demand will come mainly from US, China and India. In 2006-07 demand for petroleum products, in India, for instance, had risen 5.9 per cent and is likely to grow at 4.4 per cent in future. Imports of petroleum products had shot up 31 per cent in value and have crossed 5 per cent of GDP.
For oil prices to steady it is necessary that the increase in world demand is met by corresponding increase in supply. The IEA has therefore requested the 12 member OPEC, which is responsible for about one third of the world oil production and more than two-thirds of world oil exports, to step up supplies.
OPEC however is in no mood to oblige.
OPEC had actually cut oil production by 1.2 mbd in November last year when oil prices had dropped below $60 a barrel, which has implicitly become the floor price. A further cut of 500,000 barrels was made last February when prices failed to be retrieved.
Since then prices have generally ruled above the implicit floor partly because of the supply shortfalls from Nigeria and the nuclear dispute with Iran. The present rise in prices seems more of a signal of a long-term imbalance between demand and supply. That is so for a variety of reasons.
The world GDP is increasing at an amazing rate of 5.4 per cent generating demand for oil at its fastest clip in recent years. On the contrary, there is severe lack of growth in oil producing capacity and reduced investment in oil refineries.
This is particularly true of Iraq, Iran and Venezuela. Further, the 0.5 mpd production capacity in Nigeria, which has been shut down for more than a year, is unlikely to be reopened in the near future. There is the nibbling fear therefore that there is likely to be a structural imbalance between demand and supply for quite a while and that prices will consequently rise to over $100 a barrel in the near future.
Countries are therefore scurrying to either reduce demand or find substitutes for crude. US has initiated "Twenty in Ten" plan which seeks to reduce demand for petrol by 20 per cent in 10 years. Similarly, large scale substitution of ethanol is under way. In India zetropa has been identified as a good biofuel but progress is slow. What should really work is improvement in oil efficiency for which there is ample scope.
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