Boil of oil: Let us tackle it with toil
Deccan Herald, Bangalore, July 07, 2008
High oil price is a stark reality we can't wish away. Instead of brooding over it, we must find ways to reduce our dependence on oil. Dilip Maitra suggests several measures that can help in the short and long term. Let us begin with a prophetic quote: "People who think that oil prices will go down once production is raised are wrong because there are indications the prices will remain high.
Consuming countries should adapt with the prices and tools of the market and to solve their issues with a fair logic" these were the words of King Abdullah the ruler of Saudi Arabia, the world's largest producer and exporter of oil. Saudi is currently pumping out at the rate of 9.7 million barrels of crude oil a day accounting for nearly a fourth of the production by the Oil Producing & Exporting Countries (OPEC). The Saudi King was quoted on July 1, 2008 in an Arab paper in the context of world oil prices reaching the record $144 a barrel.
The King knows what he is talking about? And we know that his words must ring an alarm bell for us. The global supply of oil is now hovering around 88 million barrels a day, which is just about enough to meet the global demand. As America continues to guzzle nearly a fourth of world's consumption, use of oil is rapidly increasing in fast developing countries like China and India. Moreover, oil has become the hottest target for the commodity speculators whose total exposures in commodity speculation are presently estimated at $300 billion. International oil experts believe that oil prices, which have nearly doubled in the last one year to $144 a barrel, will only go up from here and may even reach $200 by the end of 2008.
So what does this mean for us? Fasten your seat belt tightly and get ready for a turbulent journey that may last for half a decade. Yes, we are talking about the future of India where the global oil prices will take the centre stage and most of the counter measures by the government will have a little impact.
Huge burden
If pessimism today is all pervasive there are reasons behind that. India's current monthly oil import is averaging at $7.7 billion (Rs 33,000 crore) and at this rate our annual oil import bill will touch Rs 470,000 crore and the annual subsidy from the government to the oil marketing companies is likely to touch Rs 250,000 crore even after the recent price increase and duty cuts.
This huge burden along with subsidies on fertiliser and food grains is likely to cause a major imbalance in the government's balance sheet in 2008-09 by increasing its budget deficit.
No place to hide
Rise in oil prices has pushed up the overall rate of inflation to a 13-year record high of 11.64 per cent. Inflation will gallop as and when the petrol, diesel prices are raised again.
It is always better to pass on the increased oil prices to consumers because price protection through subsidies does not force a cut in consumption and ultimately benefit oil-producing countries. If increased cost of oil is not passed on, the government's subsidy bill will rise forcing it to print more money leading to over all inflation. We are hit, either way.
With the rise in international prices oil companies are suffering from huge under recoveries. At present price oil marketing companies lose Rs 15 on a litre of petrol, Rs 25 on diesel, Rs 38 on kerosene and Rs 338 per LPG cylinder. Of course, the government gives them oil bonds to meet the gap but they are never on time and always inadequate to meet the working capital need.
Not so helpless
Now the question is what should we do? Suffer helplessly to the whims and fancy of the oil producing countries or think seriously how to lessen our misery? Actually there are quite a few things we can do & vehicle pooling: According to a study done by a New Delhi based energy research, 80 per cent of the passenger cars, utility vehicles and two wheelers on Indian roads ply with only person in it. This means that there is immense scope for car-pooling by forming small groups traveling in same vehicle to same destination. Internet is a great enabler to achieve this.
Drive electric vehicle: Switching over to battery operated bikes; scooters and cars can significantly reduce your spending on oil. The running cost of an electric scooter, for example, works out to only 10 paisa a km against Rs 5 for a small petrol car or Rs 4 for a diesel car. If a person consumes 50 litres of petrol in a month at a cost of Rs 2900, he might be able to save at least Rs 2000 a month after factoring in recharging cost of electric scooter and limited usage of the car with the family.
Of course, driving a scooter cannot be as comfortable and safe as car, but you can't gain without any pain. Reva Electric is producing electric cars and there are number of manufacturers for electric bikes. A Delhi based company is working on an electric three wheeler that can carry passengers.
Better usage of autos: in many small towns auto rickshaws ply between two fixed points at fixed fare. This concept can be tried in large cities like Bangalore and Hyderabad to reduce cost of traveling and lower oil consumptions. We should leave our vehicles at home and seriously consider using city bus services or metro services to work, even if it means spending more time commuting, The savings will be huge.
Lower gas consumption: To save on cooking gas, whose price has shot up in tandem with oil price, housewives should try microwaves. It is myth that microwaves are not suitable for Indian cooking. Most dishes can be cooked correctly and quickly A housewife pointed out that by using microwave she could save Rs 170 a month on LPG, while the electric bill went up by Rs 30 a month: a net savings of Rs 140 a month or 38 per cent.
Long-term strategy
The short-term measures will give us some small relief, but real solution lies in a broad and long term energy policy.
Here the government policies will play the key role in creating an ecosystem that will not only reduce our dependence on oil but will also increasingly harness usage of renewable sources of energy Since India has abundant reserve of coal, we must use it more to fulfill the energy need.
As coal is much cheaper than oil, it can be used to produce more electricity that will replace oil through improved battery technology The problem air pollution associated with coal based power plants can be addressed to a large extent by promoting technology that liquefy coal.
On the east coast of the country huge reserve of free natural gas has been discovered and a few private companies have already started the exploration. This gas can be used for cooking through piped distribution and also for running trucks and busses. In the national capital Delhi, the success of CNG in replacing diesel and petrol for trucks, buses, autos and taxis is a good example of what can be achieved if there is political will.
Unfortunately usage of natural gas in several applications is stuck due to nonexistence of a proper gas pricing policy, thanks to bureaucracy in Delhi and in gas producing states.
Rather than subsidising oil, which only adds to the profits of oil producing countries, the central and state governments must provide subsidy to promote battery operated scooters, bikes, three wheelers, cars, buses and trams. Delhi, Madhya Pradesh and Jharkhand are some of the states, which recently announced 40 per cent subsidy on electric scooters.
Governments can provide financial assistance and subsidy to mass transport systems of metro rail, monorail and road transport. This will help create sustainable long-term solutions for people's movement and reduce oil consumption. Singapore's excellent metro and bus services are a good example of what can be done.
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