The Black Gold’s Curse

The recent record surge in oil prices has led many OPEC countries to re-evaluate their energy demand. This Outlook India commentary suggests that these newfound concerns are only the beginning of a worldwide reckoning of oil security. Rising prices are a symptom not of an impending global supply crisis, but of a concentration of reserves and an enormous projected leap in production in primarily Middle Eastern countries. In the future, importing countries will have to compete more and more for the region's oil. This outlook, which carries dangerous geopolitical and strategic implications for oil consumers, means that those countries must take actions to secure their energy sources now. In particular, countries like India and China, which are undergoing building and development booms, must build more energy-efficient facilities and transport systems so that the future nightmare scenario of a worldwide clash among oil consumers can be averted. – YaleGlobal

The Black Gold's Curse

Despite several myths, energy security has become the new global concern
R.K. Pachauri
Thursday, April 28, 2005

Oil prices have reached record levels in recent months, and the IMF as well as analysts predict a future with little comfort for major oil importing countries. Energy security has emerged as a global concern even as several myths associated with the concept highlight a fear of physical disruptions in supply and the world running out of oil. In fact, such a prospect is unlikely. What is happening, however, is a reduction in reserves in non-OPEC nations, while increases in demand in China, India and, of course, the US continue unabated.

The International Energy Agency (IEA) projects that by 2030 oil production from OPEC's West Asian nations would increase to 51.8 million barrels per day from 19 million barrels per day in 2002. This almost three-fold increase in production is fraught with serious consequences for politics not only in that region, but worldwide. Major oil-consuming nations may exert influence on the region through subtle and overt means, including military power. And future oil prices would fluctuate with any change in supply or demand. Given the growing dependence of supply from OPEC West Asia, the vulnerability of economic systems dependent on oil imports would increase too. Energy security, therefore, becomes an important element of economic security for a country like India with growing dependence on oil imports. If economic policy and Indian diplomacy do not factor this reality into strategic directions for the future, economic prospects for this nation could suffer seriously.

In a globalised world, with an increasing demand for oil and limited sources of supply, competition for existing and yet-to-be-found reserves is likely to hot up towards a strong clash of interests between major consuming nations. The tension emanating from the geopolitics of oil would drive diplomatic and strategic interests of major nations quite aggressively in the years ahead involving the US as the largest consumer, and, increasingly, China and India too. India needs to diversify not only its oil supply sources but also tap other energy sources, such as natural gas and renewables. It is for this reason that in 1989 Dr Ali Shams Ardekani, former deputy foreign minister of Iran, and I came up with the proposal for an Iran-Pakistan-India pipeline. It is gratifying that the Government of India is moving ahead vigorously with the project, US objections notwithstanding. Mani Shankar Aiyar has come up with a brilliant proposal to extend this pipeline to China, thus enhancing the security of supply upstream through Pakistani territory.

It would, however, be wrong to believe that securing the oil supply for the country's growing demand would be adequate in itself to ensure energy security, which should embrace an assurance of steady economic growth and the ability to withstand future oil price shocks. The most critical element of an enlightened energy policy would be to ensure that the Indian economy's structure matches the assurance of sustainable and manageable supply options. In this context, certain developments provide a basis for concern. The transport sector is becoming oil-intensive with a shift in the share of both passenger and freight transport away from rail to the oil-intensive road transport. A threat to India's energy security is, thus, the continuing stagnation of the Indian railway system and its deficiencies in providing service capable of weaning away traffic from road transport. We are also seeing an escalating proliferation of personal vehicular transport, with little attention to promote adequate and reliable public transport systems. Still unsatisfactory is the record of inadequate development of inland water transport and coastal shipping. For every passenger or unit of goods moved, waterborne transport is the most energy-efficient option, which we have been singularly unsuccessful in utilising.

The current trend towards constructing energy-guzzling buildings and structures regardless of their energy implications is another area of deepening concern. The designs

of shopping malls being multiplied on an unprecedented scale are borrowed from similar malls in the US, hardly known for efficient energy use. Large apartments and other buildings similarly ignore the principles of energy-efficient architecture and the use of options such as solar water heating, which is viable for normal household use in most parts of the country. Part of this current problem results from irrational pricing, particularly electricity, but there is also a lack of awareness and education, particularly among architects and builders who haven't created any designs in harmony with the country's climatic conditions. TERI's RETREAT complex, for instance, uses no power from the grid, and its demand for energy has been reduced to 1/3rd of that required for a similar building, through energy conserving architecture, yet providing enhanced indoor space comfort. The alternative would be to have the country locked into construction, increasing our dependence on intensive energy use for decades to come, given the life of normal buildings, which make changes impossible once the initial design and structure have been created.

Energy security and, therefore, the prospects of stable and healthy economic growth would depend on timely initiatives involving not only energy supply sectors but major energy-consuming sectors too. In the Government of India, these subjects are handled in a fragmented manner by separate ministries and departments. Perhaps, the country's interest would be well served if a cabinet committee chaired by the prime minister could be set up to deal with this subject. The alternative would be harmful to future economic prospects for India.

The author is Director-General of TERI.

© Outlook Publishing (India) Private Limited 2005. Reprinted from the Outlook Magazine, 2 May 2005 edition.