A SCARY oil scenario for the near future for the world has been painted by the International Monetary Fund (IMF) which is not given to exaggerations in such critical areas. The world monetary agency in its mid-year review of the economy has forecast that fast rising oil consumption in China and other developing countries will “keep oil prices sky high for decades to come.”
The projection by the alarmed monetary agency does not excluded over $100 for a barrel of oil which it holds as a possibility.
The demand for oil is rising in the top consuming country like the US as well. And compounding the difficulties is the shortage of refining capacity, which restricts production of petrol and other petroleum products, particularly in the US which pushes the prices.
So the IMF says that by 2030 the average price of oil could be $39 to 56 a barrel in real terms. In nominal terms without adjusting for inflation, the price would be $67 to $96 a barrel owing to the exploding demand for oil in China and India spending their new-found wealth.
Oil prices are up by 40 per cent since the beginning of the year, and crossed $58 barrel on May 4 in New York. They then made a modest slide down to $54 and now to $52.
The Gulf crude which Pakistan imports is about 10 dollars a barrel cheaper than the sweet crude of the U.S. but its efficacy is also less.
The International Energy Agency based in Paris, which is the energy advisory body of the industrial states says, the world must turn away from oil to bring down oil prices. It calls for energy conservation and energy efficiency, which are backed by President Bush of the US. He is formulating his own energy policy for the US with these two elements as its main planks.
But the scope for major oil savings through energy efficiency is limited as the number of cars on the road in the rich as well as developing countries is increasing rapidly. And they need refined petrol which is short in supply because of the limited refining capacity.
The number of cars in China, for example, will rise from 21 million in 2002 to 390 million in 2030. The number of cars in India too is increasing rapidly and countries like Pakistan are following suit, opting for larger cars. Not content with local assembling, we are following suit, opting for larger cars. Not content with local assembling, we are now opting for liberal import of larger cars thanks to generous bank loans.
As a result of such developments, the demand for oil in the world will rise from 82 million barrels a day now to 140 million barrels by 2030, which seems to be a land-mark year for oil.
IMF officials say that oil prices will be a “permanent shock” to the world. How will we absorb that or adjust to the remains to be seen.
Meanwhile, the Opec is planning to increase its output by 500,000 barrel a day which is better than nothing. The OPEC leaders like Saudi Arabia and Kuwait want to act to reduce oil price crisis. They do not want the world to turn away from oil as advised by the International Energy Agency and seek to avoid over supply and lower oil prices.
The Opec leaders who were earlier talking of a $20 to $30 a barrel price range now prefer a $30 to $40 band and are delighted when the oil price goes above that limit as it has been in recent times, touching the peak of $58 plus.
The ball of high priced oil was set rolling by the U.S. investment firm of Goldman Sachs which in its report spoke of oil touching $105 a barrel.
The IMF says that if higher price of oil, inflation and major currency movements trigger abrupt changes in the world, the situation can alter dramatically.
The oil price problem is made complex by the fact oil is priced in dollars and the dollar has been falling for the last three years against other strong currencies like the euro. So the oil producers are getting less and less in terms of purchasing power for the dollars they get selling oil.
In the 1970s when the oil shock hit the world, the rich industrial states were blamed for guzzling an excess of oil and wasting too much energy. But now developing countries like China and India are being blamed for consuming an increasing amount of oil through the rapidly rising use of cars.
How is Pakistan going to cope with the situation? We have been talking of energy conservation and energy efficiency without doing anything significant about either or producing some real results. Now we are supposed to have a 20-year energy policy which will take us to 2025, though not to the landmark 2030.
When is that policy going to come out and how long will that be publicly debated before it is finalised? It is supposed to be an all-embracing policy, which has to be the sheet anchor of our industrial policy as energy is the basic input which industry of all kinds need.
Meanwhile, we are going more to nuclear power, and the foundation stone has been laid for Chashma II with a capacity of 325 MW. It is largely similar to the Chashma I with almost the same capacity and will be completed by 2011 with Chinese help and financial assistance.
More hydro- power is to be produced through big and small dams. The world Bank has asked the government to take a decision on the issue of the Kalabagh or Bhasha and others dams to come up with them. Kalabagh Dam is a political dynamite which remains to be defused.
Efforts are to be stepped up to find more oil and gas within the country. Foreign investors are being encouraged to invest more in the petroleum sector in a big way. Global interest will be more in Pakistan now than before in view of the anticipated shortage of oil in the world and the expected high prices. Off- shore operations have also to be stepped up with larger incentives to those who opt for such operations.
Production of more electric power using gas is also to be encouraged as quite many foreign companies are interested in that and have the resource to invest.
Real efforts have to be made to produce renewable energy, although initially that may be more costly than the conventional energy.
Along with that all effective steps have to be taken to check waste or misuse of energy. And stern steps have to be taken to prevent theft of power by anyone rich or poor, officials or non- officials. If theft of power is checked consumption and waste of power will come down.
The fact is that if foreign oil companies find oil, they have to be paid world prices of oil. The government’s too shares in that handsomely. And that disillusions the people.
If the foreign companies find gas while looking for oil they have to be paid the price of oil. Hence the gas prices in the country are to be raised by 10 per cent according to OGRA.
