Relationship

India and Oil – Special Reports for Equity Financial Advisory Clients

This is oil, not gold, oil that developing nations need to fuel their economies and grow with the rest of the 21st century world. India is an excellent example. Unlike the days of the British Raj, when Indian princes and their British counterparts found fame and fortune as hunters of exotic animals and precious gems, today these princes are oil hunters.

While India’s economy is advancing with growth rates of over 8% year on year, its ability to keep up is increasingly dependent on oil and energy resources. It has struggled with rolling power outages, blackouts and blackouts that are hurting production and overall growth, according to an Economy.com® report from Matthew Cairns.

India’s economy is not unlike ours 100 years ago. Our population left the fields and joined the middle class as new manufacturing industries created jobs. With this new middle-class status come the demands for life’s perks…air conditioners, automobiles, appliances…all of which place even more demands on an overburdened power system.

According to figures from the Department of Energy, India’s current domestic crude oil production accounts for only 30% of its total demand. To pick up the slack, India is looking to increase its nuclear power production by a factor of 10 over the next 15 years. India is also striving to increase hydroelectric generation, which currently supplies around 20% of current energy needs.

India does not have enough domestic oil resources to meet the demand for energy. As a result, they are forced to import around two-thirds of their daily requirement of 2 million barrels per day.

Part of the reason why we have seen oil prices soar in the last two years can be attributed not only to India’s thirst, but also to neighboring China, its competitor for imported oil. Between the two nations they import about 7% of global demand at 5.46 million barrels per day, according to PetrolWorld statistics.

By 2025, Indian officials project that their nation could be consuming 7.4 million barrels a day — more than triple what they consume today. This level of consumption bodes ill for the rest of the world competing for scarce oil resources, as well as for an environment that could pay the price in increased energy-related pollution.

India’s success in meeting its growing energy needs will stem in large part from its diplomatic success in dealing with old adversaries. Having no direct borders with Asian oil-producing countries, India needs a transit system across the border with Pakistan, or access to Myanmar, a geographically strategic Asian source of oil…both of which historically have not been “best friends” from India.

In the search for oil, India’s biggest competitor remains China. Oil and Natural Gas Corporation of India. (ONGC) has invested approximately $3.5 billion in offshore exploration since the early 2000s…but that pales in comparison to China’s largest international oil company’s investments of around $40 billion.

While the two giants are competing for the same prize, they have begun cooperating and working together on a number of other energy-related projects. Earlier this year, as Glenn Levine reported on Economy.com, the two countries reached an agreement that aims to promote cooperation and collusion between Indian and Chinese companies when they compete for energy resources.

Investors should keep an eye on this part of the world and its struggle to meet energy needs. The outcome will have a major impact on our oil prices and the development of these giants as traders in our economy. On the plus side, these nations are learning to compete economically rather than on the battlefields of war.

Leave a Reply

Your email address will not be published. Required fields are marked *