SHRI DEORA CALLS UPON CONSUMER NATIONS TO DIVERSIFY ENERGY MIX; DEVELOP STRATEGIC OIL STORAGES
OUTPUT CUT BY PRODUCERS NOT IDEAL AS OIL PRICE CORRECTION LONG OVERDUE
PETROLEUM MINSTER ADDRESSES 5 COUNTRIES ENERGY ROUNDTABLE AT BEIJING
Shri Murli Deora, Minister of Petroleum & Natural Gas today addressed the 5 countries Energy Ministers meeting at Beijing attended by major energy consuming countries namely USA, China, Japan and Korea beside India. The countries together account for 45% of global oil consumption and hence any major joint initiative by these nations is likely to have a major impact on the global energy scenario.
Prior to the Roundtable meeting, Shri Murli Deora met the Premier of China Mr. Wen Jiabao and complimented China on this initiative of organizing the Energy Ministers meet of major consuming countries to share concerns and to make joint efforts at establishing a stable, secure and sustainable hydrocarbon economy. Shri Deora also referred to the successful visit of Chinese President Mr. Hu Jintao to India last month and reaffirmed the commitment to further strengthen and expand hydrocarbon ties between the two countries. India and China are expected to sign MOUs for cooperation in Strategic Stocks and E&P activities in third countries.
Delivering the keynote address, Shri Murli Deora raised pertinent issues concerning consuming countries like Asian Premium, need for diversification of energy mix and oil supply sources, nuclear energy, development of strategic stocks by consuming nations to address energy security issues. He called for affordable energy and stated that it is disturbing that some producers are rushing to curtail oil production when the market fundamentals are beginning to come to the fore after a prolonged period of volatility in oil prices fuelled by speculation. He pointed out that this forum is an integral part of global producer and consumer dialogue. .
Shri Deora also provided an insight into India’s multipronged strategy like accelerated domestic E&P, acquisition of overseas hydrocarbon assets, diversification of procurement sources, increased thrust on energy efficiency, etc. He also called for criss cross investment between Producers and Consumers which will help in reducing redundancy costs.
The keynote address was well received by the gathering. Following is the text of the speech by Shri Murli Deora :.
“I am happy to be in this historic and vibrant city of Beijing. It is an honor to participate in this Ministerial Round Table.
1. India has been championing the cause of international cooperation to ensure a sustainable global hydrocarbon economy and has held two very successful Round Table Conferences of Asian producing and consuming countries in New Delhi in January 2005 and November 2005. In today’s world of energy interdependence, we believe that hydrocarbon producing and consuming nations have shared interests in ensuring stability, security and sustainability of the global hydrocarbon economy. While this Round Table focuses on concerns of consuming nations, we believe that it is integral to the framework of global producer - consumer dialogue.
2. Since the beginning of this millennium, we have witnessed a sharp rise in oil prices that have more than doubled between 2000 and 2006. Without dwelling into the reasons, let me mention that the sharp rise and prolonged stay of oil prices at record levels point towards structural issues of the oil market. It is a wakeup call for policy makers to formulate appropriate policies and programmes to mitigate the adverse consequences of high energy costs on the global economy.
3. Over the last two months it would appear that the long overdue correction in oil prices has set in. The volatile movement in oil prices has been attributed, perhaps rightly, to excessive paper transactions and producers had expressed their inability to contain the rising prices. But that, the diminishing speculative interest should spark production cuts by some producers is not an ideal situation for market participants, particularly oil consumers. We recognize that oil has strategic implications and is in a different league as compared to other commodities and accept that some management may be necessary to ensure sustainable development. However, in the long term there is no doubt that supply and demand fundamentals should be the prime drivers.
4. A reasonable and affordable price of oil remains a contentious issue and generates considerable debate. While there can be divergent views in the market-driven world we live in, we have to trust the market to find a dynamic equilibrium as far as the intrinsic value of oil is concerned. We believe that the OPEC price band mechanism, adopted in 2000, is an important reference point to approach the issue of ensuring affordable energy to consuming countries.
5. Lagging refining capacity additions, particularly to match the slate of heavier and high sulphur grades in the face of tightening oil specifications across the world, has been a concern. India is committed to environment protection by improving product specifications which help in reducing the release of harmful effluents into the environment. Investments to the tune of USD 3.3 billion have already been made and a further USD 2.2 billion will be invested over the next 4 years. We have exported about 22 Million tonnes of products in the last year and with several refining projects being undertaken in our country, we expect to remain an important hub for export of petro-products, both to Asian and Western markets.
6. Friends, the Asian oil market is less developed compared with western ones and for this reason, results in an anomalous price situation where some Middle East exporters price the crude oil for the Asia Pacific region differently from other regions. The price for Asia Pacific customers is sometimes lower and sometimes higher. Typically, on an average basis, the price for Asia Pacific customers tends to be higher. Some experts have suggested that such a pricing structure is a result of lower dependence by the western market on Middle East oil due to diversification of both supply sources for oil as well as the fuel mix away from oil. We all appreciate that pricing structure and associated issues are fairly complex. It is for consuming nations like China, India, Japan and Korea to ponder whether individual and collective efforts are necessary to have a dialogue with influential Middle East exporters to address this issue. It is important that major Asian consumers who have assembled here today do not lose sight of the fact that Western nations, by reducing import dependence on oil, have improved their position vis a vis pricing by oil exporters. As per studies by the Institute of Energy Economics, Japan and Petroleum Planning and Analysis Cell of India, the Asian Premium has wide ramifications on the economies of Asian countries.
7. There is tremendous scope with regard to the issue of diversification of supply sources for oil. With the right export routes, large expansions of oil production capacity in Russia and Caspian region can become a reality. Pipeline routes to the Far East can help in Asian Consumers having access to cost effective oil and must be pursued actively through investments by Asian countries. This will also help in reducing competition between Eastern and Western markets for West African oil.
8. Turning to the development of alternative energy sources, there is a need for developing countries to harness coal resources through cleaner technologies, coal gasification projects, etc. Bio-fuels have shown promise in recent times and there is scope for enhancing their use, wherever possible. Gas to Liquids is another exciting area that is emerging on the global energy scenario. Development of Coal Bed Methane, hydrogen and gas hydrates are areas which hold considerable promise and there is need for cooperation between large energy consuming countries like us to cooperate for mutual benefit.
9. While development of alternatives fuels is essential, there is a need to maintain a balance between economic development and environmental concerns. I would like to stress here that from the Environment perspective, the ‘World has no Borders’. Harmful emissions released by any country can have adverse affects cutting across geographical boundaries as witnessed through increased green house emissions, leakage of radioactivity, etc. Hence, I would like to urge that technological know-how in the area of cleaner technologies should be exchanged proactively and freely between developed and developing nations for our common good.
10. The Indian economy has been growing at over 8% per annum. India's per capita energy consumption is just one fifth of the world average. India still has a high dependence on traditional energy sources in rural areas. The stated goal of our Government is to provide energy at affordable prices to our people as it is crucial to achieving India's development objectives. We are committed to consolidating growth and reducing disparities which are holding our economy back from achieving its full potential. However, there are formidable challenges to overcome.
11. We recognize that achieving sustained economic growth rates at over 8% in the future calls for commensurate energy availability. India's dependence on import of oil and gas renders economic progress vulnerable to international oil market developments. Hence, effective management of oil security assumes urgency.
12. India has put in place a multi-pronged strategy to secure energy. This strategy includes accelerated exploration of our domestic basins, a conducive policy framework for inviting more foreign investment in exploration and production of hydrocarbons domestically, encouraging acquisition of equity oil and gas abroad by our companies and providing greater focus on energy efficiency and fuel conservation measures. Another notable initiative has been to convert the entire public transport fleet in our cities, including Delhi and Mumbai, to Compressed Natural Gas. Additionally, auto LPG has been introduced in some large cities. These have not only made public transportation less expensive but have also led to better environment and reduced pollution.
13. As a major sugar cane producing country, blending of ethanol in gasoline in India has been taken up aggressively. Ethanol is a renewable alternative fuel which is environmentally benign and has the potential to put more disposable income in the hands of the farming community. Starting with 5% blend this year, which accounts for nearly 0.56 million KL of Ethanol, we hope to be able to double it in the coming years.
14. The market has been attributing high oil prices to demand explosion in China and India. I would like to share with you that demand growth in India has averaged 2.7% per annum over the last five years. In fact during the last financial year, the demand growth was less than 1% which is less than global demand growth rate. Further, India accounts for 17% of world population but contributes only 4.2% in total world greenhouse gas emissions. Yet, India is taking all possible steps to reduce its energy intensity and improve environment standards at considerable cost.
15. Oil security, in our view, encompasses both physical security and price security. It is not sufficient to access oil but we also need to insulate the domestic economy from the detrimental effects caused by high oil prices. Given the vital role of energy in the economic and social well being of the common man, it is imperative that we are able to provide oil at affordable prices. The Indian Government and the national oil companies are absorbing over 85% of the difference between the cost of imports and domestic oil prices, particularly, in respect of life-line fuels for the bulk of the population, namely, domestic LPG and Kerosene supplied through the Public Distribution System. This subsidy puts a strain on social sector outlays, which are crucial to eradication of poverty.
16. Today, we live in an interdependent world and achieving energy independence remains an elusive goal. The lack of alternatives, particularly in the transport sector makes oil indispensable in the energy basket and alternative fuels are not expected to make a big impact in the near future. The oil producers who had faced a prolonged slump in oil prices in the 1990s were saddled with unproductive slack and are now seeking assured demand to ramp up spare capacity. The consuming nations have to concede that producers have a legitimate concern of having to invest heavily in unproductive and therefore revenue negative spare production capacity. To mitigate the capacity redundancy costs, we can consider criss-cross investments whereby producers invest in consuming countries downstream assets and consumers invest in producing countries upstream assets. This will help in sharing the costs of maintaining spare capacity for the benefit of the global economy.
17. The principal consumers have shared interests and concerns regarding the oil market, not restricted to high oil prices but larger structural issues. It is important for consumers to collectively study these concerns and initiate corrective actions through both long term and short-term measures. While some issues can be addressed only by action at the consumers end like diversification of supply sources, increased use of alternative fuels, etc., yet others require continued dialogue with the oil producers.
18. Inventories are an integral part of the supply chain and provide a cushion to the oil market from the adverse impact of temporary supply disruptions. The developed countries are known to hold inventories corresponding to a minimum of 90 days of net imports, whereas several countries store much larger quantities. Besides, there is a system of emergency response involving share of the inventories between member countries of the OECD. I am of the opinion that developing Asian countries should seriously consider building strategic storage of oil. India has plans to construct tankage with a capacity to store 15 MMT of oil in the long term, with 5 MMT of storage capacity expected in the first phase. The high oil prices currently prevailing make oil inventory-carrying costs prohibitive, particularly for developing countries. The need for maintaining strategic stocks and judicious inventory management are measures developing countries in Asia must seriously consider.
19. There is a need for consumers to form a joint group to identify the issues and suggest remedial measures. The cooperation can be at 3 levels. At the Government to Government level it should focus on macro policy issues. The second level of cooperation can be between industry players. This can be in the form of joint development of resources, sharing of expertise and transfer of technical know-how. At the third level, cooperation could be between research institutions covering studies over the long term. By actively embracing this approach, the consumers and producers can work together and take appropriate corrective action for mutual benefit.
20. I am sure, the deliberations and conclusions arrived at in this Round Table will facilitate in bringing stability to the oil market and ensure security and sustainable development of the hydrocarbon economy.
21. I would like to thank the host China for this initiative in bringing together the major consuming nations.”
RCJ/relBeijingRoundtable(16-12-2006
(Release ID :23398)