17 January 2005	Monday	06 Zilhaj 1425

India wants an Asian oil market complete with all the facilities, including trading exchanges, to ensure steady supply of oil to the Asian economies and soften price volatility.

India which imports 70 per cent of its crude oil needs, with an estimated annual growth in demand of 3.6 per cent for 2005-2007, has been forced to hasten the move for an Asian petroleum market by the recent record rise in world price of oil which touched $55 a barrel and the prevailing high prices with their sudden fluctuations for one reason or another.

India made the first public move in that direction by having a one-day conference in New Delhi last week of the major oil producers and major Asian oil consumers, who supported the move to secure steady supplies at reasonable prices.

Asia is consuming 40 per cent of the world oil production of 82 million barrels a day, which is bound to increase in the next 20 years before its decline. As the Asian economies expand, as China's and India's have been, the demand for oil will increase. And both China and India are eager to line up their oil needs for the next 40 years. The preliminary agreement signed by India with Iran for the supply of liquefied natural gas will last for 25 years from the year 2009 at a cost of $40 billion.

Mr Mani Shankar Aiyar, India's minister for petroleum, who is the leading spirit behind such a move, said at the one-day conference that it is essential that we develop a sophisticated Asian market for petroleum and petroleum products to ensure supply stability and reduce price volatility.

Other major oil guzzlers in Asia- Japan, South Korea and China- too attended the meeting and supported the move. The conference noted that booming economic growth has turned Asia into one of the main buyers of Gulf oil, but lack of partnership between the producers and consumers has made Asian nations vulnerable to global oil price volatility, and that vacuum has to be filled now instead of the major Asian economies competing with each other in securing their oil supplies and at reasonable prices.

Mani Aiyar, who was consul general in Karachi, in the 1980's also called for the setting up a strategic storage and mutual investment in each other's territories to promote oil supply security.

He said that a regional market would spur transparent pricing, allow for derivatives trading, and reflect the real role in the global oil economy of Asian production, Asian consumption and Asian trade.

Iran's oil minister Bijan Namdar Zanghaneh said with emergence of giant Asian consumers the continent was set to become the gravity centre of the world's energy consumption. He said Asia contained the world's largest oil reserves.

The Middle Eastern oil producers account for some 26 per cent of the global oil production, which is expected to jump to 31 per cent by the year 2025. Following India's suggestion to invest in each other's territories in the petroleum industry, India is to explore for oil in the Iranian oil fields.

Pakistan did not participate in the New Delhi conference as it is a not a major consumer of oil but if an Asian oil market is to be set up and strengthened, Pakistan has to be an active member of that. But Pakistan has from time to time special arrangements with the Gulf oil states like Saudi Arabia and others. So it is not obvious now whether Pakistan would be keen on being a member of the Asian oil market and prefer collective bargaining to selective bargaining.

Right at the moment, the selective bargaining phase appears to be over with the end of the Saudi Oil Facility after it had lasted for six years when it was very useful.

Saudi Arabia, which until recently pumped 9.5 million barrels of oil per day sold 60 per cent of its oil or 4.5 million barrels a day to Asia, says it is ready to pump more oil to meet the needs of its Asian customers. Saudi Arabia's export of oil to Asia represented 20 per cent of its consumption.

Assuring the one-day conference of steady supply of adequate oil to Asia, the Saudi Oil Minister Ali Nuwaimi said that Saudi Arabia had a good track as a responsible and reliable energy supplier. And apart from the 9.5 million barrels of oil it produces it had always a spare production capacity of 1.5-2 million barrels a day to meet the special needs of regular customers.

And now ARAMCO, the American-Arab oil company based in Saudi Arabia is going to explore oil in China. Meanwhile, Iran wants to get more revenues out of the existing oil output instead of pumping more to meet the world shortage of oil and bring down prices.

It wants Opec to curtail output the moment world oil prices go below 40 dollars a barrel. Iran has always been for lower output and higher prices ever since the dollar went down by 25 per cent against the euro.

It has no mercy for the Western oil consumers; but the ones really hurt are the poor consumers in Asia. Higher oil prices aggravate their inflation, lower employment, slow down economic growth and and worsens the negative economic indicators.

What matters to the Asian countries is not only the assurance of steady supply of oil but also fair prices. If an Asian oil market can ensure fair prices, nothing can be better. The Asian realities can impinge on the Asian oil market.

Meanwhile the Saudi oil minister says: "Saudi Arabia is pledged to absolute reliability in times of scarcity and in times of abundance. And we will not allow misunderstanding of any sort to affect our relationships.

Major Asian countries are branching out in new areas. India is buying a large interest in the Russian petroleum giant Yukos which has been split up and auctioned under orders from the Kremlin.

And China is negotiating the purchase of the major US oil company Unocal at a cost of 13 billion dollar, the largest considered by China ever. Our own OGDC has been trying for opportunities to explore oil in other countries.

What is certain is that with Asia consuming 40 per cent of the world oil output and oil prices fluctuating upward most of the time, an Asian Oil Market will become a reality soon.

While the major oil producers, like Saudi Arabia and Iran, are supporting that move along with the major consumers of oil like China, Japan and South Korea, apart from India, Asian consumers of oil do not want to look to the New York oil exchange or quotations for the Brent Crude from London to know their own import prices for oil.

Asia has come of age in this regard and an Asian oil market complete with trading exchanges should become a reality soon to strengthen the Asian identity in the world oil market.