Energy Reform Should Be Indian Government's Top Priority: IEA

Dr. Fatih Birol, Chief Economist at International Energy Agency, says the oil-importing nations should not "get too relaxed" as low crude prices are a temporary phenomenon. NDTV's Shweta Rajpal Kohli caught up with him at the World Economic Forum in Davos.

Here is an edited transcript:

Question: If there is one dominant theme this year in Davos, it's the fall in the oil prices. Prices hitting rock bottom levels, abundant supplies... what's going on in the world of oil?

Answer: Not only in Davos, around the globe people are talking about the oil prices going down. Why are the prices here today and what will happen tomorrow? So why are we here today, for two reasons - One, there is a lot of oil production. Non-OPEC production increase has been the highest in the last thirty years. So, there is lot of oil. And on the other hand, demand was very weak because of the slowdown in the global economy. The European economy is still very weak, Chinese economy is slowing down, Japan is in recession. Hence demand is very weak, supply being a lot, means prices lowering down.

Question: So you've got abundant supplies, low demand and it's the demand-supply dynamic playing out given this how low can we really go on oil prices?

Answer: I think there will be some downward pressure for some time to come. The important thing is low prices $45 to 50 dollars are a temporary phenomenon. It's a very good breathing zone for oil importing countries.

Question: New lease of life is what the economy has got.

Answer: I completely agree but don't get too relaxed. Prices will again go up because of simple economics. This year 2015 we will see oil investments going down by 15 per cent. But if we don't invest in production, production will not go up. Therefore, we expect towards the end of this year, we will see an upward pressure in the prices. The oil importing countries such as India have to take this into account that comfort zone of low prices will not be forever.

Question: The government has been following a balanced approach in terms of the benefits arising out of the lower prices. Do you think is that the right way to go forward?

Answer: I think, India is lucky for two reasons. One, India's oil import bill is about $110 billion in general and if the prices remain at this level, it will be halved to $50 billion. Very good for trade balance. Second, you have a government that makes the most out of this situation by phasing out of subsidies on diesel. This is a very good step in the right direction. It is one of the very few governments in the world which followed the picture and made the necessary steps at the right time and therefore it is also very good for the fiscal balances of the country. But once again this is not the end of the story and in India energy demand will increase substantially, especially for coal. Very soon, India will be the second largest coal consumer overtaking the United States. A decade later India will be second largest oil importer after China so lots of investments will go in India.

Question: India is among the largest producer and we are also among the largest importers of coal. This perhaps is one of the biggest challenges that the Indian government is trying to address...

Answer: Exactly, the other good news is that the coal prices also went down substantially so three-four years ago they were about $120 and now they are about $70-75 today and this is also very good news. But for me the biggest challenge for India is the building power plants.

Question: Would you give us a timeframe as to when will we see the tide turning on oil prices?

Answer: I think we may well see that by the end of this year we may see the upward pressure under prices. So, India and the other oil importing countries should be very careful and understand that this will not be forever. And by the way given all these challenges, being an energy power in the future and having a government determined to make structured reforms, we have decided at the International Energy Agency that we are going to make a special report on India's energy this year which will be published in November 2015.

Question: Share with us what's your view on the Indian economy right now given that we have a stable, business-friendly government lead by Narendra Modi in place.

Answer: When I look at the government's program, it is very encouraging. When I look at the first steps they are very encouraging. What I would like to see is determined structured reform process to continue and it has to be the top priority of the government and I believe our report will have the Indian government in that respect.

Question: In terms of the energy demand, is it also very important for India to hunt for oil and gas and become more self-sufficient in energy and not be so dependent on imported oil?

Answer: What India can do is that: Reduce the oil import dependency, how? If we can use the cars and trucks more efficiently. Efficiency should be a standard for them like in Europe, like in the United States, Japan and China.