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Energy security: The fight ahead
Wed, 12 Dec Pre-Open

Energy security for long has been a key driving force behind major geopolitical events including wars. And why not? In the race to become a global economic super power, access to cheap energy will be the key differentiator between winners and losers.

While the US economy is likely to be free from fuel constraints (due to glut of shale gas), the situation is quite grim back home. India imports around 80% of its crude oil requirements. Going forward, the situation will be worse as domestic oil fields continue to mature and decline. The technological limitations and retrogressive policies in the oil and gas sector leave little incentive to explore new opportunities in the country. Among all this, there is a further issue of India's dependence on Iran for crude. As Western countries impose sanctions on Iranian crude supplies, we need to look elsewhere to meet the country's growing energy needs.

Oil & Natural Gas Corporation's (ONGC) decision to acquire a stake in Kashagan oil field in Kazakhstan is one such step to ensure regular supplies . At US$ 5 bn for 8.4% stake, the price may look high. At the same time, the potential of 16% increase in ONGC's output within a year as a result of this deal is hard to resist. After all, the value of an asset depends upon demand supply dynamics. While the oil supply is limited and further constraining due to geopolitical events (such as in Libya, Iran etc.), the demand is likely to increase across the globe, especially from Asian economies like China and Japan. With nuclear power plant closures in Japan, the reliance on oil will increase and there is likely to be a tough competition to get a stake in the oil fields that are already producing.

However, there are some bigger questions that we need to answer. Even if we get a stake, will this be a significant step towards energy security? Well, as per the statistics, the resulting output will to be too small to meet the energy needs of the country that is likely to be the third largest energy consumer in the world. While a need to diversify the supply source can't be denied, we simultaneously need to find long term viable solutions for the energy needs. This will start with framing reasonable policies for the energy sector and making it lucrative enough for the foreign partners to come in with their capital and technology to invest in domestic fields.

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Feb 20, 2018 03:35 PM