The oil opportunity for India
India must use the fall in prices to plan an energy strategyUpdated: Apr 21, 2020, 17:19 IST
The price of Texas oil futures fell below zero dollars per barrel on Monday. In theory, and for a fleeting moment, an empty barrel of crude oil was worth more than a full one. This was a symbolic milestone, a consequence of a lack of storage and quarter-end fire sales rather than a stable market situation. Oil price futures have recovered, but only to their still absurdly low band of $20 to $25 a barrel. Brent crude price, the relevant one for India, continues to stay in the low $20’s. All of this reflects the enormous mismatch between global supply and demand. There was already a surplus of oil before the coronavirus pandemic. After the outbreak and the continuing economic retrenchment, the world is awash with black gold. The recent, much-touted 15 million-barrel oil production cuts announced by various countries proved toothless in the face of a 30 million-barrel drop in demand. The brief fall of Texas oil prices into negative was a headline-catching symptom of the current problem of surplus. There have been other signs — the record 160 million barrels of oil stored on stationary tankers, and countries such as Nigeria being unable to sell sweet light crude at even $11. Natural gas prices have followed a slippery slope as well.
As one of the world’s largest importers and a country repeatedly brought to its knees by crude spikes, India has always been happy when prices have crashed. But it has moved beyond the days when it looked at oil solely in terms of how much foreign exchange it could save. Today, it should look at how it can quickly enhance its strategic reserves to benefit from the falling prices; China, for instance, is doing just that. It should assure future supplies (this is a good time to enter into long-term contracts). And finally, it should also judge how the present oil crisis will affect, for better or for worse, its long-term energy strategy.
New Delhi should keep a firm eye on its long-standing goals of promoting solar and wind energy, shifting more baseload power to natural gas, and shutting its most-polluting coal-fired power plants, but it is unlikely that even the most cost-effective of these will be able to match oil prices in the short and maybe even medium term.