COMMENTARY – India’s calls for responsible pricing for oil and gas likely to fall on deaf ears


A fuel pump in the Indian capital

Energy-hungry India might want responsible pricing for crude and natural gas, but its pleas are likely to only fall on deaf ears as producing nations – battling to earn more after historical lows that impacted their economies negatively – are unlikely to oblige.

Prime Minister Narendra Modi, in his speech at this week’s International Energy Forum Ministerial Meeting — which is being held at a time when oil is touching $70 per barrel — urged oil-producing nations to shift to “responsible pricing” to balance the interests of both producers and consumers.

Modi said there was a need to move to transparent and flexible markets for both oil and gas to serve the energy needs of humanity in an optimal manner.

He argued that for the world to grow as a whole, there has to be a mutually supportive relationship between producers and consumers.

According to him, it was in the interests of producers that other economies keep expanding steadily and rapidly, as that would ensure growing energy markets for them.

India’s concerns are genuine.

For India, rising cost of crude oil globally is always bad news, as it imports more than 80 percent of its requirement to fuel its growing economy.

The average price of crude oil that India is paying this year is $56.22 against last year’s average of $47.56, and it is unlikely to fall given that Brent crude is seen to hover between $60-$70 per barrel this year.

Oil prices are currently at their highest since December 2014 when they fell from highs of nearly $150 per barrel, prompting the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC members to reduce output in an effort to push prices higher.

There are two critical reasons behind India’s current plea for “responsible pricing.”

One, Modi’s government is staring at critical elections in the near term. The ruling Bharatiya Janata Party doesn’t want rising oil prices to stoke inflation that could turn voters against it.

Long-term concerns

That apart, the long-term concerns are critical too.

In the long run, India’s economic growth will only increase consumption and imports given poor domestic production. India is forecast to be the driver of global energy demand in the next 25 years. It’s oil and gas demand is expected to increase nearly three-fold from 229 million metric tons to 607 million metric tons in 2040.

Low energy prices, therefore, are a must for India’s macro-economic stability and which is why the need for Modi to give social contours to the debate over rising oil price and for the government to try and arm-twist producers to make concessions for the world’s third-biggest crude importer.

However, oil-producing nations have their own problems to deal with, leaving little scope for them to worry about India’s.

Saudi Arabia, which just agreed to invest in a $44 billion refinery and petrochemical complex in India, is battling serious economic slowdown thanks to low oil prices in the past few years.

Other OPEC and non-OPEC members have similar economic problems, and none might be willing to consider India’s call for responsible pricing at a time when higher prices are in their interest.

In the seesaw rollercoaster of the oil market OPEC is expecting global oil stocks surplus to end thanks to rising energy demand and its own supply cuts. Moreover, OPEC is also keen to continue production cuts until 2019.

All this means prices could only be headed north. Given oil producing nations are trying very hard to keep prices up, there is little room for them to adopt “responsible pricing” just because India wants them.

This would be rather bad news for energy-hungry India and its government preparing to win a second five-year mandate next year.

Leave a Reply

Your email address will not be published. Required fields are marked *