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FEDERATION OF INDIAN CHAMBERS OF
COMMERCE AND INDUSTRY
The initial shift towards commercial energy use was mainly on account of increased usage of oil. Share of oil in total energy consumption more than doubled from 5.5% in 1960-61 to 13.4% in 1970-71.
Share of domestic production of crude oil was only 28.7% while 71.3% were imports. Total crude oil production in 2003-04 was 33 million tons while imports was as high as 90 million tons. The average annual rate of growth of crude oil production in the country over the last 6 years was a negative 0.2%.
However, in the case of other major refined products like motor gasoline, jet kerosene and diesel the country was self-sufficient and even a net exporter. Export share of the domestic production of motor gasoline was a high 29.1% while the share of jet kerosene exported was 29.6%. Even in the case of diesel the exports was a significant 8.1% of the production.
Production of petroleum products has grown by an annual average rate of 10% over the last six years with output going up from 65 million tons in 1997-98 to 113 million tons in 2003-04.
Increase in domestic production of petroleum products has led to a decline in
imports from 23 million tons in 1997-98 to 8 million tons in 2003-04 and also a
pick up in exports from 2 million tons to 15 million tons.
Long-term trends show that growth of sales of petroleum production in the country had initially picked up from an average annual rate of 4.8% in 1974-79 (Fifth Plan) to a peak level of 6.9% in 1985-90 (Eighth plan)
Since then, the growth rate of petrol sales have slowed down to 4.9% in 1997- 2002 (Ninth Plan) and is expected to further slow down to 3.7% in the Tenth Plan (2002-07).
Trends in actual consumption of petroleum products also validate the sales projections. Growth of consumption of oil products (including RBF) slowed down from a peak level of 8.9% in 1999-00 to a low of 0.7% in 2002-03 and picked up marginally to 3.8% in 2003-04.
In 2004 the International Energy Agency has to revise upwards its estimates for global oil demand by over 3 million barrels per day, one of the largest margins of such revisions in recent decades. This was mainly because of the strong demand for oil in China and the United States.
Many factors including the electricity shortages in China have added to the demand for diesel generators. The policy of the Chinese government to treble strategic oil reserves to 90 days by 2015 also contributed to the pick up in demand.
A shift in preference towards fuel inefficient vehicles in the United States was another factor. The other factor that contributed to the increase in demand for oil in the United State was the sharp increase in natural gas prices. The US had also been building up its strategic petroleum reserves from 600 million barrels in late 2001 to 660 million barrels by end 2004 further adding to the tight market conditions.
The excess capacity with OPEC countries now stands at less than 1 million barrels per day, the lowest levels since the early nineties. By end of 2003 OPEC abandoned its attempts to keep oil prices in the $ 22-$ 28 per barrel band as significant swing producers like Saudi Arabia and UAE failed to increase production in line with demand increases.
On reason for this was the failure to step up investments for increasing production capacity in recent years. A lack of transparency, that deprives the market of reliable up to date information on global supplies, also adds to the problems. It has been estimated that additional spare capacity (relative to current levels) of 5 million barrels per day may reduce price volatility by 50%.
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