Oil Crisis: A View from USA

HN DasThe metal signboards all around the residence of the President of the United States of America has a single message. It ends with the following sentence: “While the Capitol represents the freedom and the ideals of the nation, the White House stands for the power and the statesmanship of the Chief Executive.”Standing in front of the White House on a June 2008 morning, I looked at the Capitol, at a distance, where the US Congress consisting of the Senate and the House of Representatives sits. The Congress is the legislative wing of the Republic. The executive business is conducted in the White House and another big building in its compound. The huge Treasury building, across the road and perpendicular to the White House, conducts the financial business of the Republic.Standing at that vantage point, I realized that the statesmanship mentioned in the above quotation referred to the innate qualities of the leader chosen by free and fair election among the citizens of the USA. But the President’s power is derived from the wealth and support of the nation.The USA is the wealthiest nation in the world. According to the World Bank’s estimates for 2005, the gross national income (GNI) of the USA was $12,969.6 billion against China’s $2,263.8 billion and India’s $793.0 billion. The USA, however, has only a small population of 296 million compared to China’s 1,305 million and India’s 1,095 million. Therefore, the per capita income of the USA was $43,740 against China’s $1,740 and India’s $720. The International Monetary Fund found that, in terms of purchasing power parity (PPP), the USA’s per capita wealth in 2007 was $143,727 against China’s $11,267 and India’s $6,613.This wealth has been accumulated during the past five centuries by the very hard, intelligent and dedicated work of generations of enlightened immigrants who came from a post-renaissance Europe. This has been enriched by a couple of generations of IT-savvy immigrants from Asia, especially from China and India, who came in the second half of the 20th century.This tremendous wealth, both physical and human, was the basis of the USA’s power. It used the wealth to help the Allies during the second world war, Europe in the reconstruction phase under the Marshal plan, and the poor countries either directly or through the World Bank. The USA derived international power after it joined the Allies in the Second World War, ending centuries of isolation.This great nation is now smitten by a gigantic crisis. As a result of the increase of crude oil price from $45 per barrel in 2004 to $143 in June 2008 in the international market, the gasoline price per gallon in the local market has quadrupled from less than $1 in 1999 to $4 in June 2008. This has let out an inflationary pressure which has engulfed the entire economy. Meanwhile, one of the worst recessions has thrown hundreds of thousands of workers out of job so that the unemployment rate has reached the record high of 5.5 per cent. The automobile industry is in doldrums. Thousands of vehicles remain unsold in the yards. Residential and commercial house holders are in a quandary because many are facing foreclosure of their mortgages. The trade deficit has increased sky high. The US Dollar has fallen in value in the international market. The oil producers are preferring to have their payments, and to hold their surplus, in other currencies, mainly in euro.Many experts predict that the American lifestyle, based on heavy consumption of gasoline and other oil products, is facing a deep crisis. Some predict an end of this lifestyle. One expert — Paul Swartz, Chairman of the Capital Region Energy Forum — even predicted an end of the Western civilization! (Times Union, Albany, New York, June 10, 2008). In this context it is necessary to go into the root causes of this crisis of crude oil price rise. Beside the demand supply mismatch, there are quite a few factors which exerted extraneous pressure on price in recent times. Iran, for example, is in a state of flux because of constant fear of war against Israel. Iran has 10 per cent of the world’s proven oil reserves. Its production was 6 million barrels of crude oil per day in 1974. This figure fell to 3.8 million barrels per day by 2006. This happened because ever “since the 1979 Iranian Revolution due to a combination of political unrest, war with Iraq, limited investment, US sanctions, and a high rate of natural decline”, the production has been falling. Recent outbursts of US President George Bush against Iran’s nuclear programme and additional sanctions by the USA and European countries aggravated the situation. Iran has curtailed production and increased the price of crude oil.Supply has been reduced due to a number of other factors. There has been a “peaking” of world oil production. “Peak oil” has been defined as “the point in time when the maximum rate of global petroleum production is reached, after which the rate of production enters terminal decline.” According to the International Energy Agency’s estimates, there has been a “pronounced loss of momentum in the growth of oil production during the last few years. After climbing from 82.90 million barrels per day (mb/d) in 2004 to 84.15 mb/d in 2005, output only increased to 84.80 mb/d in 2006 and then declined to 84.62 mb/d during the first ten months of 2007” (Earth Policy Institute, Lester R. Brown, “Beyond the Oil Peak”, November 15, 2007.)Demand, on the other hand, has been increasing tremendously. World population has increased so much that it is expected to become double between 1980 and 2030. People are becoming more oil dependent. In the rich countries demand for oil is increasing fast because people are consuming more, private transport is increasing, and there is some amount of hoarding too. In the USA, for example, 88 per cent of the workforce use private transport to go to work. Public transport has not developed at all. Beside hoarding by the oil companies, the US Government is maintaining a Strategic Petroleum Reserve of 727 million barrels at four sites in the gulf of Mexico in enormous salt caverns which have been converted to store crude oil.China has been consuming more and more oil to propel its unbelievable rate of economic development. The number of cars is increasing. Energy-intensive industries such as steel and aluminium are consuming more and more electricity generated from oil. All coal-based power plants in the Beijing area have been converted into oil based in order to reduce the level of pollution in that city ahead of the Olympics. China is feverishly buying crude oil in the international market for strategic purposes.One extraneous factor which is playing a sinister role is speculation. Hedge Fund operators and Wall Street bankers are pushing up crude oil price by their activities in the New York market. This probably prompted Morgan Stanley to predict that crude oil price will reach $150 by July 4,2008 — the US National Day.What is the solution? The US has the resilience to bring its economy back to track given the political will. It has more than sufficient oil reserves. Already there is a move to go in for offshore drilling which was earlier prohibited due to environmental reasons. The presumptive Republican Presidential candidate Senator John McCaine supported such drilling and claimed that the US has “untapped oil reserves of at least 21 billion barrels’’.(The Washington Post, June 17, 2008). President Bush seemed to agree. (The New York Times, June 18,2008). Beside that, the US has the largest known deposits of oil shale in the world, which is “enough to meet US demand for oil at current rates for 110 years” (Oil Reserves, Wikipedia). This means that the US can easily overcome the present oil crisis in a short time.The problem will be for countries like India where the entire development process may be stunted due to increase in price of crude oil and non-availability of sufficient oil resources. (The writer was Chief Secretary, Assam, during 1990-95)

source: sentinel assam

Move to speed up Gas Cracker Project work

From Kalyan Barooah

NEW DELHI, June 30 – In a bid to fasttrack the implementation of the mega Gas Cracker Project, a deadline of September 15 has been set for selection of licensors and financial closure. A crucial review meeting of the Project, chaired by Union Minister of State for Chemicals and Fertilizers, Bijoy Krishna Handique fixed the timetable for completion of the vital formalities. This came even as the Prime Minister’s Office has called for priority in selection of a full-fledged Managing Director and a Director of the Brahmaputra Crackers and Polymers Limited (BCPL).The selection process for the post of Managing Director is expected to take another six months, said the Minister, talking to this newspaper soon after the review meeting. Necessary papers for finalisation of the criteria, norms and qualifications have been forwarded to the Department of Public Enterprise, sources said. BPCL has already appointed a full-time chief operating officer and chief financial officer. Technical and the contracts and procurement teams have been formed. To expedite the clearance process, a sub-committee of the Board has been formed, sources said. However, the meeting at Shastri Bhavan today while reviewing the progress of the works noted with dismay the suspension of the fencing work following trouble at the work site. A Guwahati-based company was awarded the contract for the fencing works estimated to cost Rs 4 crore. Chairman-cum-Managing Director of GAIL, Dr UD Choubey had formally launched the commencement of fencing work on May 28. Following trouble between the company and local contractors, work has been suspended. The meeting today requested State Industries Commissioner, Ravi Kapoor to look into the issue and sort it out. The meeting was attended by officials of Gas Authority of India Limited (GAIL), Ministry of Chemicals and Fertilizers and Assam Government.Meanwhile, the Minister said a firm timetable for completion of formalities has been set. All work like floating of tenders and selection of technology and licensors would start in July. A deadline of September has been set by when all tenders would be awarded, he said.The two main tasks set out for completion include financial closure of BPCL and selection of licensor. The technology is to be selected by the licensor. There are three major players the world over.With the PMO closely monitoring the progress of the project, officials are under pressure to work on a schedule and complete the project within 60 months. Handiqe, meanwhile, said that he is not satisfied with the progress of the work and has impressed upon the officials to fast track the execution of the Project.The joint venture project among GAIL, Oil India Limited (OIL), Numaligarh Refinery Limited (NRL) and Assam Government is estimated to cost Rs 5,460 crore. The Government of India is shelling out a subsidy of Rs 2138 crore. The Prime Minister has laid the foundation stone of the project in April last year. source: assam tribune

President favours alternative fuel

President favours alternative fuel

MUMBAI, June 27 (PTI): Rise of crude oil prices to new highs of USD 140 per barrel has brought to the fore the debate of finding alternative sources of energy, President Pratibha Patil said. “Oil prices have touched USD 140 per barrel from levels between USD 12 to 23 in 1998-99. The high oil prices have an impact on the global economy, on oil importing countries and on individuals,” Patil said while inaugurating a conference here. The President said that the use of bio-fuels like ethanol as an alternative would require analysis. “Converting world grain into ethanol will reduce food quantity available in a scenario where global population is increasing,” Patil said. “We need energy mixes that are sustainable. Renewable sources of energy-wind, solar, tidal, geo-thermal, hydro and nuclear are sources of cleaner energy,” she said. The fear of food insecurity was also now a global worry with recent estimates stating that the recent price hike in foodgrains had pushed about 100 million additional people close to malnutrition, Patil said. “For stable food security there is now a need for a new round of Green Revolution all over,” she said. “The agricultural research system of the world should be re-vitalised and efforts should be stepped up for developing scientific solutions for increasing agricultural productivity, including rainfed agriculture, particularly in drought prone areas and also improving food grain storage facilities,” Patil said. The President also said it was necessary to develop water-saving and cost-effective technologies for desalination of sea water. The World Domestic Product had reached a level of more than USD 48 trillion in 2006 but it had not meant an equitable distribution of wealth, Patil said. “Two per cent of the world’s richest people own more than 50 per cent of the world’s wealth while the poorest 50 per cent of people own one per cent. The situation is unsustainable,” she said. Source: assam tribune

Parleys with OPEC

Parleys with OPEC After that shocking statement (made over a week ago) that the government could do nothing about the inflation, Union Finance Minister P Chidambaram seems to have returned to terra firma in an effort to tackle galloping oil prices. On Sunday, the Finance Minister was in Jeddah, urging a meeting of the members of the Organization of Petroleum Exporting Countries (OPEC) to take a more rational stand on fixing crude oil prices. After all, petroleum prices have zoomed from just $50 a barrel only last August to around $135-150 now, thereby triggering off the worst inflation in 13 years in India and bucking similar inflationary trends all over the world. Chidambaram said that the only way to check sky-rocketing prices and the resulting inflation was for both consumers and producers to find common ground, adding that a price band mechanism would instil mutual confidence. ‘‘Consuming countries must guarantee that oil prices will not fall below an agreed level and producing countries must guarantee that oil prices will not rise above a guaranteed level,’’ he said at the ministerial segment of the Conference of Oil Producing and Consuming Countries in Jeddah that had been convened at Saudi Arabia's initiative to discuss what it said was an ‘‘unjustified rise’’ in prices of petroleum products. Chidambaram also called on oil-producing nations to re-assert their leadership in price formation and not remain passive spectators of speculation and paper trading in oil.One could not think of a more rational mode of arriving at fair prices for what nature provided as bounty to some countries but did not to many others. However, there is no accounting for human cupidity, whether individual or collective. And that perhaps is the foremost factor that has almost trebled crude oil prices in a span of just ten months. There were other possible reasons that we had referred to in an earlier editorial on the subject — like the desire of the Arab world to teach the United States a lesson for its illegal occupation of Iraq as also for consuming 75 per cent of the world's fossil fuel. We had also said that this business of OPEC trying to teach the US a lesson hurts all developing countries of the world, especially those that have no petroleum resources. What makes it all the more difficult to bear is that OPEC, which meets just about a third of the world's oil requirement, should be able to hold the world to ransom over oil prices. At the same time, what should make us thankful for small mercies is that Saudi Arabia, a front-ranking producer of oil, should not only have convened this conference on the recent rise in oil prices, but has said that the rise was unjustified. This is indication enough that some soul-searching is taking place even within OPEC. While these initiatives by India are timely, there is much else that needs to be done to ensure that we do not have to be at the mercy of OPEC for all times to come. As we said earlier, we need to develop and augment our own resources of petroleum products. This involves exploration of all the resources of oil in our own country, as well as bidding for oil producing blocks in Myanmar and other neighbouring countries that were deemed uneconomical earlier, but have ceased to be so now with oil prices having more than doubled. We must also get our scientists to start working frantically to find alternative sources of energy. And having done all this, we must address ourselves ruthlessly to the task of eliminating waste of energy from government establishments. After all, why should the public end up paying for what the government wastes? Source: sentinel assam editorial

Centre firm to implement Accord: Sonia

By A Staff Reporter GUWAHATI, June 13 – Asserting that the Centre was committed to implementing the Assam Accord in its all aspects, Congress president and UPA chairperson Sonia Gandhi today and said that farmers’ interests and rural development were two key areas of focus of the UPA Government. Addressing a ‘State-level Kisan Rally’ (farmers’ rally) at the Khanapara Veterinary College playground in the city, Gandhi said that the Congress had all along been striving for development of the State and that it was duty-bound to implement the Assam Accord. “We are committed to implementing the Assam Accord in its different aspects – be it development or checking infiltration,” she said. Gandhi said that modernization of agriculture had been a top priority for the UPA Government and that more funds would be pumped in to boost the sector. Terming the Rs 70,000-crore loan waiver for farmers of the country as a landmark move, she said that the BJP-led NDA Government had done nothing for the farmers. Reiterating its commitment to protect the State from flood and erosion, the Congress president said that the recommendations of the flood task force were being implemented to check the menace. Claiming that the UPA Government was successful in arresting a possible steeper hike in oil prices, Gandhi said that fuel prices in India were still much lower than in its neighbouring countries. “While the BJP was in power, oil price in the international market was Rs 30-40 a barrel which is now Rs 130-140 a barrel. The recent hike, therefore, was inevitable but is still comparatively low considering the unprecedented hike in the international market,” she reasoned. In a veiled reference to the proposed Indo-US nuclear deal, Gandhi said that the changing circumstances made it imperative that prospects of nuclear energy were explored to meet growing power needs. “Nuclear energy has gained much importance in view of the steep rise in global oil prices,” she said.Gandhi had a word of praise for the self-help group (SHG) movement in the State, saying that with 80 per cent woman participation, the nearly 1.5 lakh SHGs of Assam were giving a fillip to woman entrepreneurship in villages. Gandhi further said that the ambitious Bharat Nirman project would change the face of the villages in terms of infrastructure and amenities. Gandhi also said that the Centre accorded priority to the development of minority communities and had set up a special ministry for them. Earlier, the UPA chairperson recalled the sacrifices of the farming community in India’s freedom struggle, and dwelt specifically on the farmers’ revolts of Assam at Patharughat and Phulaguri. Chief Minister Tarun Gogoi, Congress Working Committee (CWC) member Veerappa Moily, Union Ministers Santosh Mohan Dev and Bijoy Krishna Handique, senior leader Margaret Alva and Assam Pradesh Congress Committee (APCC) president Bhubaneswar Kalita were present at the dais. Earlier, Sonaram Bardoloi and Deepali Senapati, two model farmers, felicitated Sonia Gandhi. Source: assam tribune