22 November 2012, 06:29 PM IST
Higher supply and lower fuel bills will benefit India substantially.
The global oil industry is going through some epochal changes that could have far reaching implications on energy prices geo political strategies. This is because of the sustained efforts to improve efficiency in use of energy and also due to substantial changes in supply and demand says the World Energy Outlook an annual publication brought out by the International Energy Agency. A major outcome of these changes is that while the US becomes almost a net exporter of oil and gas the dependence of EU, China and India on imports shoots up. However the savings on the fuel bill will boost global output by around $ 18 trillion with India emerging as one the biggest gainers.
The trigger to these stunning developments is the policy and technological changes in the United States which is steadily pushing up light oil and gas production. This will not only make the US, which now imports a fifth of its energy requirements, the largest oil producer in the world before the end of the decade, even overtaking Saudi Arabia, but also make the US almost a net oil exporter by 2030. The other equally significant development is the emergence of Iraq as the second largest oil exporter overtaking Russia in the 2030s. In fact the country is expected to contribute almost half the increase in global supplies during this period.
But what makes these supply side gains even more substantial are the energy conservation policies being implemented by most major oil consuming countries that have drawn up strategies to improve efficiency in use of energy. While the United States has adopted new fuel economy standards, China plans to reduce the oil intensity of production by 16% by 2015 while the EU plans to reduce energy consumption by 20% by 2020 and Japan plans to cut electricity consumption by 10% by 2030.
These efficiencies would be a game changer as improvements in oil use could halve the growth in global energy demand and also ensure that global oil demand first peaks a little before 2020 and then fall by as much as 13 million barrels a day by 2035. This is a significant decline which is almost equal to the current levels of oil produced by both Russia and Norway combined. This will push down fuel bills by $ 17.5 trillion and also reduce supply side investment requirements by $ 5.9 trillion.
The end results of these efficacy gains would be reallocation of resource which will cumulative boost global economic output by $ 18 trillion by 2035 with most of the gains accruing to India, China, United States and Europe. The highest GDP gains would be in India (3%), followed by China (2.1%), US (1.7%) and OECD Europe (1.1%). That is indeed some comfort given the hard times that we now face due to the high global oil prices. However, India's dependence on imported gas is expected to almost double to 40% during the period while that on oil is expected to go up from around three fourths to 90%. Clearly the government has to go all out to end all oil subsidies and ensure a substantial improvement in the efficiency of use of oil if India is to fully reap the expected gains.
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