Double-digit oil price is history: R S Sharma

During the last quarter century, primary energy consumption increased by about 64% (oil by 31%; gas by a spectacular 97%), primarily driven by growing demand from the developing world. CRISIL in a recent report has pointed out that non-OECD countries, particularly China and other Asian countries, have been the largest contributors to the 3.2 million bpd incremental world oil demand over the period 2004-07. Most forecasts for the next quarter century project more than a 60% increase in energy demand, mainly from emerging consumption centres. India’s demand for primary energy in 2030 is projected to be four times what we are consuming today (423 million tonnes of oil equivalent).
OPEC, which is now producing around 32 million bbl per day, has now a very conservative spare capacity; estimated to be less than 10%, much below its five-year average of around 15%. Besides supply restraints from OPEC, there remains sluggish growth in non-OPEC oil production. OPEC says it is shying away from increasing output because of the US economic slowdown; political turmoil in West Asia; and expectations of slackening global demand.

Against these hard facts, ‘Peak Oil’ theory has kept every one guessing. Have we reached the peak or not quite yet? We may not have a definite answer as of now, but its effect is quite visible on the dynamics of the oil market. Now, many oil geologists believe that 90% of the globe’s oil fields have already been tapped and many are already exhausted. This is reflected in the report cards of oil MNCs. Reserve replacement ratios (RRR) for most, if not all, is less than one. These fundamental and non-fundamental factors have a cause-and-effect relationship. Energy needs have generated unprecedented competition to establish control over oil and gas assets leading to intense geo-politics and resource nationalism. This makes resource centres unstable and prices volatile, intensifying speculative activities in the energy markets.

Economic Times