Depressed oil prices Challenges & Opportunities Sudha Mahalingam, Fmr Member, Petroleum & Natural Gas Regulatory Board AESS, Goa, India. March1-3, 2016

How steep the fall? 1997-98, 2000, 2008 $140 in 2008, 115 in 2014 June, then downward spiral Lowest in 12 years Gazing into a crystal ball – where will this spiral stop? Stanchart $10, Morgan Stanley $20, in any case, not anytime soon

Why are oil prices crashing? Just a cyclical trend? Over-production by OPEC? OPEC refuses to cut quotas – tragedy of the commons Shale glut? Demand deceleration? Geopolitics? Russia, Iran, Saudi Arabia Drive shale out of market?

The Winners - India Government, automobile, paint, cosmetics, aviation, consumers But fall in pump price not in tandem with fall in crude price – crude down by 60%, but pump price down by less than 10% (15000 crore excise revenue) Fiscal deficit down (3.5%) , current account deficit down Import bill down . A fall in oil prices by $10 per barrel helps reduce the current account deficit by $9.2 billion, according to a report by Livemint.  . Every $10 per barrel fall in crude oil price helps reduce retail inflation by 0.2% and wholesale price inflation by 0.5%, according to a Moneycontrol report. Petroleum subsidy 1.39% of GDP going down further Gas consumers, LNG imports cheaper SPRs – 28mb capacity (10-12 days) Rs.2400 cr budget allocation last year, none this year

The Losers Oil companies – ONGC profits drop 11%, product exports earn less Oil exporting countries – turmoil, political instability Lower remittances from expat Indians Job losses -258000/Rigs down to 698 as against 2000 in 2014 LNG projects on hold, KG Basin down Renewables, Climate change action Stock markets Investments in E&P slowing down

Conclusions Both a challenge and opportunity Make in India Budget 2017 does not send the right signals Myopic Policies – consumers continue to pay high prices, but revenues not used to create cushion/infrastructure Low investments foretell demand-supply mismatch