Like any oil importing nation, India’s economy too is at the mercy of crude oil price. As the dependence on oil increased, the impact of price swings too increased. But there are significant structural changes which are happening, though at a slower pace, are determined to free India’s economy from oil’s hostage.
1. Increase in Ethanol mixing: From the current 2% mixing of Ethanol with Petrol, there are lots of policy measures taken to increase it to beyond 10%. It works well for the sugar cane farmers too. Their crops can get better prices as sugar factories divert the cane juice to production of Ethanol. It may take two years or so for new distilleries to begin production but there are definite actions being taken to make it happen. With Sugarcane crop glut and high import prices of crude, Central Govt. has hit two targets with a single arrow. The money saved (from importing crude) flows into investments into Ethanol facilities (creating jobs) while also boosting farmer income.
2. Higher domestic oil production: Vedanta’s Anil Aggarwal says he can produce crude oil in India at $7 a barrel. Wow, that is 1/10th of the price we pay when we import it. His company Cairn Oil has won bids for the oil fields along Rajasthan border. Though we need to see how much of oil is available there, it looks promising for now and can surely take domestic production up from current numbers. Any increase here is savings in the import bill.
3. Railway Electrification: Indian Railways is the biggest guzzler of diesel in entire India. As their lines get electrified (they got huge sanctions in the last budget), demand shifts from imported crude to domestically produced coal.
4. Electric Cars: Though the electric car market is not deep, there is huge interest being shown by automaker as well as policy makers to increase their numbers. As these cars hit roads but don’t pay visits to petrol pumps but charging stations, oil consumption comes down by that proportion. With each passing year, the ratio keeps changing and probably 10 years down the line, things would have changed drastically.
Apart from this, recent price surge in crude oil and its retracement backward shows that similar changes are happening in the international market too. Any price surge may become temporary phenomenon as other channels begin to open and alternatives begin to play a catch up.
The risk to assumptions made could be in the timelines, it may take longer than expected but oil’s golden era seems to be getting over.
1. Increase in Ethanol mixing: From the current 2% mixing of Ethanol with Petrol, there are lots of policy measures taken to increase it to beyond 10%. It works well for the sugar cane farmers too. Their crops can get better prices as sugar factories divert the cane juice to production of Ethanol. It may take two years or so for new distilleries to begin production but there are definite actions being taken to make it happen. With Sugarcane crop glut and high import prices of crude, Central Govt. has hit two targets with a single arrow. The money saved (from importing crude) flows into investments into Ethanol facilities (creating jobs) while also boosting farmer income.
2. Higher domestic oil production: Vedanta’s Anil Aggarwal says he can produce crude oil in India at $7 a barrel. Wow, that is 1/10th of the price we pay when we import it. His company Cairn Oil has won bids for the oil fields along Rajasthan border. Though we need to see how much of oil is available there, it looks promising for now and can surely take domestic production up from current numbers. Any increase here is savings in the import bill.
3. Railway Electrification: Indian Railways is the biggest guzzler of diesel in entire India. As their lines get electrified (they got huge sanctions in the last budget), demand shifts from imported crude to domestically produced coal.
4. Electric Cars: Though the electric car market is not deep, there is huge interest being shown by automaker as well as policy makers to increase their numbers. As these cars hit roads but don’t pay visits to petrol pumps but charging stations, oil consumption comes down by that proportion. With each passing year, the ratio keeps changing and probably 10 years down the line, things would have changed drastically.
Apart from this, recent price surge in crude oil and its retracement backward shows that similar changes are happening in the international market too. Any price surge may become temporary phenomenon as other channels begin to open and alternatives begin to play a catch up.
The risk to assumptions made could be in the timelines, it may take longer than expected but oil’s golden era seems to be getting over.
