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  • MARCH 28, 2000

Country heading for crude crisis?

During April to January 2000, crude production declined by 1.4% on a year on year basis. This follows a YoY decline of 2.8% in crude production during FY99. The concern arises from several factors.

The first of these is that with refining capacity in India growing at a fast pace, the need for imports has dramatically increased. To put this in perspective, crude throughput increased 5.2% in FY99 and 25.2% during April February 2000. Therefore India's dependence on foreign crude has dramatically increased over the years.

Then there is the issue of the rising crude prices. With the OPEC cartel as yet unable to decide on opening the oil taps, the price of crude remain perched at levels that are three times those recorded in late 1998. Higher prices imply that there is deterioration in India's terms of trade. This is of significance as India's oil imports accounts for over 25% of the total import bill. In case the export growth were to falter, the country would be faced with the possibility of a very large current account deficit.

The last issue pertains to the domestic crude sector itself. The government has after much delay permitted private sector participation in crude drilling. However, much more needs to be doe especially to boost the productivity of existing fields, especially Bombay High. Then there is also a need to step up spending on research and exploration.

With the economy gaining pace, the demand for petroleum products will rise. In turn, the need for higher domestic crude output will be felt even more. The burgeoning oil pool deficit is just one indicator of the mess India's oil sector is in. The shortage of domestic crude is bound to balloon into a serious issue in coming years as demand rises (and domestic output continues to be bogged down by government control).

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