The Energy Crisis

The Oil Price in India has been increased yet again, by 5 Rs per liter for petrol and by 3 Rs for Diesel and 50 Rs for LPG

Global Oil price increase. Pay attention to the last graph

3 days ago, the price of oil increased 11 USD in one single day. This is the highest one day rise in the history. Many reasons are attributed to this. But I would say speculation is the most deadly reason. Maybe the Indian finance minister also felt this way, so he cancelled all the "Futures Trading" in the Indian stock Market. But the speculation trading is still going on in New York and London stock markets. Whatever the reason is being said, the main reason for the increase in oil price is the Supply-Demand Mismatch. The OPEC cartel refused to increase the production because they did learn the lesson a decade ago. When they increased the production, the oil price came down so bad, that they had to face some heavy losses. So the cartel is refusing to increase the production and they are exactly doing what any smart businessman will do. Can’t blame them really. The biggest problem is the world's dependence on oil.

Many people just don’t get the fact that Oil industry just doesn’t affect the Petrol, Diesel and LPG price. It is a major factor. Every industry right from the electronics, plastics, chemicals, pharmaceuticals, etc, etc, etc...Use one or the other by-product of the Oil industry. Ethylene is one of the thousand useful by-products we get while refining crude oil. See how much it is useful in the modern world, as said in Wikipedia.

“Approximately 80% of ethylene used in the United States and Europe is used to create ethylene oxide, ethylene dichloride, and polyethylene. In smaller quantities, ethylene is used as an anesthetic agent (in an 85% ethylene/15% oxygen ratio), to hasten fruit ripening, as well as a welding gas. Polyethylenes of various density and melt flow account for more than 50% of world ethylene demand. The primary use of polyethylene is in film applications for packaging, carrier bags and trash liners. Other applications include injection moulding, pipe extrusion, wire and cable sheathing and insulation, as well as extrusion coating of paper and cardboard.

Ethylene derivatives include: ethylene oxide, styrene monomer (via ethyl benzene) and linear higher olefins. Ethylene oxide is a key raw material in the production of surfactants and detergents. It is also used to manufacture ethylene glycols, which are in turn used in soft drinks and food packaging and textiles, and to make ethylene oxide glycol ether solvents. Styrene monomer is used principally in polystyrene for packaging and insulation, as well as in styrene butadiene rubber for tires and footwear. Linear higher olefins are used as base materials for the manufacture of detergents, plasticisers, synthetic lubricants and additives, but also as co-monomers in the production of polyethylenes”.

Next time, when you buy a room freshener, or a perfume or any pharmaceuticals products or any manufactured product for that matter, check the ingredients. You will find one or other Crude oil byproducts in it.

Well, there is an alternative. We can switch to Natural resources. For example, we can use Natural rubber instead of synthetic rubber for making tyres. That is what Goodyear tyres does. (Btw, synthetic rubber also relies mainly on Crude oil.) But wait a second, that is not going to be possible in the long run. Do you know the reason? Yup that is right. Natural resources are also depleting. What choice do you have now, but to pay the price?

When oil price goes up, the Oil companies around the world will increase the price of the finished product to save them from loss (In India, oil companies will increase price only when they totally run out of money, to even buy basic crude, but the Communist party will oppose for that too. There are only two explanations. The Communists just don’t get the basic economy right, or they are targeting only the ballot boxes) When the oil companies raise the price of the oil, they also increase the price of all the other by-products. This will affect the entire Consumer Price Index of a country, pushing the prices too high and resulting in burgeoning crisis of inflation. (Btw, the inflation in India is 8.34% and for christ sake, don’t blame the congress led UPA government for this. This is the world phenomenon. If the prices in US doesn’t go up, that doesn’t mean, our government is doing something wrong. The reason is the companies in US are bearing the loss and they are not transferring the price increase to the people. So the inflation is low in US. But this wont last long)

Well, the Indian government can actually bear the difference in oil price and do us all a big favor. But that will be a disaster. If all the countries around the world do that, then the consumers won’t feel the pinch of the crisis. They will not curb their usage and so the global demand will keep on increasing. (That is what is happening in China. As the government is bearing the difference, the price of oil is so damn low, and the people are not reducing the usage. Which increases the demand in China and eventually Oil Price goes up in the world market. Something similar is happening in India as well, but not to the extent of China. Remember, no where in the world you will get Kerosene for 9 Rs. That is why the world nations are asking India and China to cut subsidies)

If the demand keep on increasing and the Oil price goes up in the World Market, the only people in the world who will be happy are the OPEC countries. So I honestly believe price increase is the only way out and it is inevitable. In fact, it is a necessity right now. There is a thin line here. Even if the government is rich enough to bear the price, price should be increased. I would certainly advocate for that.

But the current decision will have huge repercussions in the economy. First and foremost, the stock market will plunge (That already did happen). Next the consumer price index will go up. (That is about to happen) The price hike will be transferred from the manufacturer to the retailer to the consumer. And IT WILL AFFECT EVERY LIVING SOUL. And that is just something we have to live with. One and only way out is to find alternative resource to replace Oil in at least one tenth of its commercial usage. That is all we can possibly do in the next 20 years. Let’s not get our hopes high in completely replacing Oil. It is almost impossible in the next 20 years.