Will Dr Rajan make the difference?

Wed, 7 Aug Pre-Open

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Dr Raghuram Rajan's selection as the new RBI governor seems to have won the all round approval of economists, industry and policy makers alike. As we wrote earlier, Dr Subbarao's successor in the RBI will have big shoes to fill. Dr Rajan has a reputation of being very critical of the US Fed's money printing policies. It remains to be seen if the new RBI governor manages to balance inflation and growth while stemming the incessant decline in the rupee.

Trouble for global oil majors

Meanwhile...an article in the Economist suggests that the oil super majors are likely to face a crisis like situation very soon. The key commodity that they deal in - oil seems to be witnessing a categorical shift in the demand patterns. Remember the peak oil theory Well if you do, maybe it is time to unlearn. It is no more about the scenario when oil supply will peak and then taper off thus sending the prices sky high. Now, it is the demand for oil that some experts believe will peak. Shocking though it sounds, the reasons are quite convincing. The key among these are technological revolution, shale gas discoveries, better engine designs and stricter environmental norms. To extend this logic, the threat to oil demand seems more serious in the rich world.

This means that oil super majors like Exxon Mobil, BP, Chevron, and Royal Dutch Shell may not enjoy the glory they have seen in the past during major global economic expansion. The power seems to be slipping from their hands to the countries that are naturally rich in oil reserves. Currently, over 90% of oil reserves are under the control of national oil companies (NOCs that are often owned to some extent by the respective governments) as compared to 1950s when around 85% of the reserves were with oil supermajors. Now the NOCs seem to be getting over initial hurdles regarding technological knowhow for oil production and marketing through experience. On the other hand, with increasing cost of oil production, global slowdown and geo political complexities, the oil supermajors are on a weak footing. What is worse for them is that they seem to be losing to smaller, independent and more agile oil firms. The relatively higher risks and higher costs of capital that super major oil firms face as compared to NOCs (with government backing) are further hampering the former's ability to explore fresh opportunities. They already seem to have made poor choices by not gauging the shale gas potential in time and investing in the wrong areas.

So is there still a chance for oil supermajors to come back? Perhaps trimming down or technological breakthrough could pull them out of this slowdown. Or maybe it is time for them to give up on oil and try their luck with other sources. While this is easier said than done, they need to act different to relive their past glory.