Prime Minister Narendra Modi had a point when he pushed for ‘responsible, reasonable pricing’ of energy products to make the resources affordable and accessible for consumers. In effect, Modi has decried ‘distortion’ of prices of energy products in international markets especially by the crude oil producing cartel, Organization for Petroleum Exporting Countries (OPEC) based out of Vienna in Austria. Modi has effectively articulated the position of oil importers that have borne the brunt of ‘illogical and irrational manipulation’ of energy prices with particular reference to crude oil and natural gas. He put forth India’s position at the thirteenth ministerial conclave of International Energy Forum (IEC) where ministers of top exporting and importing countries have been hosted in New Delhi. There is no reason why policy consensus cannot be evolved on rational and market-linked prices of energy products. Several countries globally have run huge budget deficits with impact on development of their respective populations owing to artificially manipulated prices of energy products.
India seems to be working towards a mid-way where both importers and exporters’ interests are adequately protected. Top crude oil companies that are in exploration, development and marketing also have to join hands if this is to be achieved. And, IEC may serve as the right forum if the energy sector pricing reforms have to be kicked off internationally. Given that China and India will account for about 50 per cent of energy consumption globally in five years from now, oil producers will have very little option but to forge an alliance with these two bulk consumers. Interestingly enough, the Prime Minister cited the big volatility in crude oil prices at $147 in 2009 to $28 per barrel in 2016 while Brent is being sold at $70 per barrel now. This huge swing in oil prices was definitely a function of manipulation in output leading to localised artificial shortages and thereby rises in prices.
Energy basket diversion, harnessing new and non-conventional energy products coupled with technology evolution would definitely have a long-lasting impact on fossil fuels. Also, given that the International Solar Alliance was led by India, the oil companies in the Persian Gulf region, Russia, Vietnam and other countries will have to take Modi seriously. Also, shale gas companies from the US have proved to be effective counter-weight to crude oil and gas companies. With equipment, technology and maintenance services of new and renewable energy products getting cost-effective, traditional fossil fuel producers have no option but to revamp their products, the mix and pricing right away.
While India moves ahead with its ‘right pricing’ argument, New Delhi should also refrain using the energy sector as a key area for revenue generation and financing deficits that have virtually become unmanageable. Even if the government were to apportion the energy subsidy three ways i.e. consumers, refiners and explorers, the current retail prices do not stand to logic, reasoning and rationale. Today, over 40 per cent of retail prices for diesel, petrol or aviation turbine fuel account for taxes, levies and imposts slapped by centre, states and local governments. Unless, there’s balancing of import and export interests in international markets, consumption economies will not expand and that could be detrimental to oil cartels.
Similarly, heavy distortions in retail prices of oil products within the country also may not be sustainable and acceptable to people in the long run. Hence, reforms in global pricing of energy products need to anyway happen as early as possible. Coupled with that, retail market prices distortions need to be immediately corrected. This will not only trigger demand for increase in consumption but also offer stability to the market that’s not consumer friendly. Making energy markets consumer friendly can easily be the starting point for energy reforms.