Can India gamble on oil price?
New Delhi, November 3:
Since the mid-90s, oil experts have agreed upon one thing that no one has a perfect crystal ball to predict oil prices. Most forecasts made by experts and institutes like International Energy Agency, the US Department of Energy and the World Bank for 2010 were in the narrow range of $20 to $30 per barrel. It looks like all of them are likely to be proven wrong.
However, now this range has widened to such a level that oil price forecasting with any degree of accuracy will be a hopeless task. When crude prices were fluctuating above $60 per barrel in 2006, former chairman of BP had predicted long-term crude price forecast of $25 to $30.
Recently, the Shell chairman predicted that a price of $150 could not be ruled out. Then there are increasing number of doomsayers who believe in peak oil theory. They are predicting a disaster scenario of oil production declining from the current level of 85 million BD when most see the oil demand increasing to 115 million BD by 2030.
One of the basic factors behind this uncertainty is the lack of transparency in the reported OPEC oil reserves. These may be overstated to secure higher production quotas by some countries as claimed by several analysts. As an alternate scenario, if we assume that OPEC has been successful in adding reserves equal to production since 1980, OPEC reserve/production ratio falls to 34 from 70.
Even this can be considered as optimistic since many national oil companies have not been able to invest the needed money and technology to discover new reserves. We also need to look at other more optimistic scenarios. According to a 2000 US Geologic survey report, one trillion barrels of oil has been produced so far and there are three more trillion barrels to be produced. Those who forecast lower crude prices are influenced by this optimistic view of reserves.
There is some similarity between the warning of impending disaster of global warming and the increasing uncertainty surrounding oil pricing. In the case of global warming, there are still some sceptics who still question science behind global warming. The US believes that it is better to depend on the free market to face the ‘inconvenient truth’ of global warming than taking acti-on now to reduce green house gases.
It has been shown that cost of avoiding global warming is a fraction of the potential losses whereas the steps to be taken to avoid oil crisis are not simple. It may involve radical lifestyle changes. Despite ample proof of global warming, there is much resistance to take the needed steps to face global warming. However in the case of oil, peak oil theories are not readily accepted.