India urges price-control system in oil market

Oil producers and consumers should join hands in setting up an effective system to prevent sharp increases in crude prices as this will only destroy demand and hurt both sides, India’s petroleum and natural gas minister has said.

S Jaipal Reddy said producer-consumer cooperation is also required to secure sufficient investment in the hydrocarbon sector to bring enough oil into the market amidst expectations of lower reliance on nuclear energy following the recent devastating earthquake in Japan.

In an article published in the quarterly bulletin of the Riyadh-based International Energy Forum (IEF), Reddy said a decision by many consumers to reduce their dependence on nuclear power in the coming years means that hydrocarbon fossil fuels will continue to play a dominant role in the world’s energy basket well into the fourth or fifth decade of the 21st century.

He said this means that the world will have to find means of bringing more and more oil to the markets, for which huge investments will be required. “For the required investments to materialise, we will need a conducive investment climate. Most of all, we will need to assure the producing/investing countries of the ‘certainty of demand’,” he said.

“The human population on the planet is inching towards the nine billion mark by the middle of the century. With a rapid increase in the consumption of energy world-wide, particularly in the emerging economies, issues related to global energy security will acquire a renewed urgency.”

He said in this perspective, the ongoing global energy dialogue will have to be strengthened so that the “burning issues before us” get addressed effectively.The minister said that with the adoption of a new Charter at the Extraordinary Ministerial meeting in Riyadh in February, the IEF emerged as a more robust and dynamic vehicle for carrying on the global energy dialogue, encompassing not just the views of all the stakeholders including the producing, consuming and transit countries, but also highlighting the need to tackle issues such as energy poverty on an urgent and global basis.

“It is our belief that energy security for the world can only come from inter-dependence among the producing, consuming and transit countries. In today’s highly globalised world, no country can be an island unto itself……..we must strive to move towards a global energy system that underlines the mutual dependency between consumers and producers, and facilitates international trade on well-accepted market principles,” he said.

“For emerging economies like India which are also net importers of oil, the stability of the international oil markets and transparency in price formation of oil are very important. Since rising fuel prices adversely affect the world economy as a whole but more so developing countries, international oil markets must not be allowed tt divorced from the fundamentals of demand and supply.”

According to Reddy, with the emergence of oil as both a physical commodity and financial asset, there is an urgent need to bring in some kind of “regulatory oversight” of the commodity and futures markets. “Oil is too important a natural resource to be left entirely unregulated in the international marketplace…..very high oil prices do not, in the long run, benefit either the producer or the consumer.

In fact, they lead to ‘demand destruction’ and thereby reduce further investments in the oil sector,” he said.“We look to the IEF in its new avatar to focus on these and other related issues, and conduct energy dialogue in a manner that enhances the mutual trust among producers and consumers, brings transparency to the oil markets, and through the mantra of inter-dependence, leads to greater energy security for the world.”

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