India & the Energy Sector

Last Updated on November 19, 2018 by Bharat Saini

At India Energy Forum by CERAWeek Prime Minister Narendra Modi highlighted India’s significant positioning in the oil and gas market while interacting with the global leaders of the energy sector on Monday 15 October 2018 in New Delhi. Modi noted that the oil market is producer driven; and both quantity and prices are determined by the oil producing countries. Though there is enough production, the unique features of marketing in the oil sector have pushed up the oil prices.  Prime Minister Modi made a strong case for a partnership between the producers and consumers in the oil market to reduce the cost of energy to help stabilise the global economy which is on path of recovery.

Saudi Arabian Energy Minister Khalid A. Al-Falih speaking at the India Energy Forum on 15 October said strengthening relations with Delhi is a strategic priority for Riyadh and it stands committed to meeting all of New Delhi’s energy needs, including oil. This meant an increase in investment in India as well. Saudi Aramco’s investment of $44 billion in the Ratnagiri refinery was “just the start” and the company was keen on investing in an integrated downstream business, including the retail side, as well as storage capacity. Khalid, however, refused to openly commit to lower oil prices, opting instead to say that the price of oil could have been much higher but for the efforts taken by his country to boost supply.

India Energy Forum, established in October 2001, has acquired a unique status as a spokesman of total energy sector and serves as a catalyst for the development of a sustainable and competitive energy sector in India. India’s energy requirements are enormous and the demand is growing but its resources are limited both in physical and financial terms. It is a long term imperative that these resources are exploited optimally. India is attracting significant attention from major overseas project developers, equipment suppliers and financiers.

India’s economic fortunes continue to be tied to the sharply fluctuating price of oil, with well over 80% of its oil demand being met through imports and oil prices have risen by as much as 70% in rupee terms in the last one year. In his address, Modi drew attention of the experts on certain key policy issues relevant to India:

• He highlighted that the consuming countries face many other economic challenges including serious resource crunch due to rising crude oil prices.
• Cooperation of the oil producing countries would be very critical to bridge this gap.
• He appealed to oil producing countries to channel their investible surplus to pursue commercial exploitation in oil sector in the developing countries.
• He sought cooperation of the developed countries both in terms of technology and extension of coverage under exploration.
• He sought the role of private participation in the distribution of gas sector.
• He appealed for assistance in areas where high pressure and high temperature technology applications are relevant to commercial exploitation of natural gas.
• He called for a review of payment terms, demanding the partial use of the rupee instead of the U.S. dollar to pay for oil, in order to ease the burden on oil-importing countries in the wake of the strengthening of the dollar.
• He said that the Government has undertaken various policy and developmental measures in the sector, such as:
  • Liberalisation in gas pricing and marketing which has been particularly in deep waters and requiring technology for high pressure high temperature exploitation.
  • Open acreage licensing policy, early monetisation of coal bed methane, incentives for discovery of small fields and seismic survey at a national level.
  • Extension of production sharing contracts in the on-going commercial exploitation.

India’s policymakers now face the difficult task of safely steering the economy in the midst of multiple external headwinds, which are likely to weigh negatively on the prospects of the World’s fastest-growing Indian economy in the coming quarters:

• The current account deficit widened to 2.4% of gross domestic product in the first quarter of 2018-19 and is expected to reach 3% for the full year.
• The rupee, which is down about 16% since the beginning of the year, doesn’t seem to be showing any signs of recovery either.
• The growth in the sales of petrol and diesel has already been affected adversely as their prices have shot through the roof.

Government of India requires a stronger policy framework and implementation to tackle this oil problem, which may include the long-term solution to will be to increasingly tap into domestic sources of energy supply while simultaneously encouraging consumers to switch to green alternatives.