THE GIST of Editorial for UPSC Exams : 01 June 2020 (What India needs to do amid oil uncertainty in the Covid world(Financial Express))

What India needs to do amid oil uncertainty in the Covid world(Financial Express)

Mains Paper 3:International
Prelims level: Not much
Mains level: Energy scarcity in the oil market worldwide post threat to India

Context:

• The post-Covid-19 world (will be) switching from “just in time” to “just in case”.
• Last month the oil market dropped into negative territory for a day in the US; now the price of the same crude quality is above $30 per barrel.
• The fine print of these reports is always caveated with the disclaimer “it all depends” on one or more of the comparably uncertain variables of economic growth: geopolitics, US-China, the timing of the development of an anti-Covid-19 vaccine or a combination of all.
• The fact is that no one really knows how the petroleum sector will fare in the “new normal” of the post-Covid-19 world.

Avoiding twists and turns in the petroleum market:

• India will need fossil fuels (coal, oil and gas) to ...........................................................................................

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Known unknownof the post-Covid-19 stress:

• They know that Covid-19 has knocked the props from under the Indian economy.
• They also know that every petroleum company, irrespective of whether they are in the private or the public sector, will face an increasingly uncertain and challenging future business environment.
• What they do not know is the nature of these challenges and, therefore, the conditions, sine qua non, for managing them.

Oil consumption in India:

• India consumes around 500,000 barrels of crude oil every day.
• It imports 450,000 barrels per day, making it the third-largest crude market in the world. Every month, on average, 70 loaded VLCC (very large crude carriers), accounting for 10% of the global tanker market of 700 ships, bring crude oil to India.
• Approximately 60% of this oil is discharged in and around the Jamnagar area, and then carried by pipelines to the refineries in Jamnagar, Mathura, Panipat, Bina and Bhatinda. And 50% or so is sourced from Saudi Arabia, Kuwait, Abu Dhabi, Iran and Iraq.
• ONGC and OIL are strategically important PSUs. The policy support to these two companies and the importance of harnessing our indigenous oil and gas reserves.
• This support has been premised on the view that oil supplies are relatively scarce and that prices will trend upwards. We now need to ask the question: What if, “just in case”, the oil market is structurally oversupplied and prices fall to such low levels that it makes no commercial sense for ONGC/OIL to expend public resources on “high-risk, high-cost” exploration?
• Oil and gas are, after all, tradeables and can be purchased on the high seas? Should they not, given this possibility, contemplate redefining their core purpose and perhaps pivot away from oil and gas towards clean energy?

What is new are the circumstances wrought by Covid-19?

• The issue of strategic reserves could, for instance, acquire a different hue. We have currently 11 days of reserve cover (5.33 MT) with plans to increase it to 24 days (11.83 MT).
• To decide to build up ........................................................................................................................

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Conclusion:

• This collaborative option would have to be considered to counter the “just in case” contingency of a prolonged and major disruption.
• And if, indeed, such an option were acceptable, it could be extended to cover trading, crude purchases and co-freighting, subject, of course, to anti-trust and competition rules.

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Prelims Questions:

Q.1) With reference to the Sports Authority of India (SAI), consider the following statements:
1. It is the apex national sports body of India for the development of sport in India.
2. It was established in 1984.

Which of the statements given above is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2

Answer..........................

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Mains Questions:
Q.1)What if prices fall so low that it makes no commercial sense for ONGC/OIL to expend public resources on high-risk, high-cost exploration? Comment.