Oil imports call for review of energy options

Sushma Ramachandran
Senior Financial Journalist

THE Ukraine crisis has put the spotlight on energy. Normally, the issue is mentioned only in passing during any discussion on the economy as it is a truism that India depends heavily on imports for its oil and gas needs. The reliance on purchases from abroad has been growing over the years. There was a time in the halcyon days of the 1980s, after the Bombay High offshore oilfields

had been discovered, that India was able to meet 70 per cent of its needs from domestic sources. The situation has now reversed. Currently, the country needs to import about 85 per cent of its crude oil and natural gas consumption.

The conflict in a distant European country has highlighted this vulnerability of the economy. Global crude prices reached a peak of $130 per barrel recently but are now hovering around $101. For a country that was expecting to spend roughly $75 per barrel for buying oil this year, the surge has come as an unpleasant surprise. But every crisis can turn into a learning opportunity. This is the time to review the country’s energy options for the medium and long-term and make course corrections to ensure such problems do not occur more often. While it may not be feasible to become atmanirbhar or entirely self-sufficient, it should be possible to reduce the present state of being virtually completely dependent on external sources for fossil fuels.

The first issue that needs to be considered is the efforts being made to find more oil and gas within the country. In the past, at least some oil majors like Chevron took part in the bidding for on land and offshore blocks. But in recent years, the many rounds of bidding have yielded responses only from private companies, like Vedanta and Reliance or from state-owned oil firms, the ONGC and Oil India Limited. It is clear that better terms and conditions need to be offered, especially given the fact that geological prospectivity for hydrocarbons is better in several other countries. And one of the advantages in offering improved terms right now is that oil exploration activity tends to increase during periods of high prices, as it makes the operations more feasible in financial terms. Exploration is a risky and highly capital-intensive business, so adequate returns are essential.

A second area of focus needs to be investments in oilfields abroad. Whether these are ultimately going to yield returns in terms of actual supplies needs to be considered for the long run. India has invested in several countries, including the UAE, South Sudan, Azerbaijan and Russia. Output from these countries dipped from a peak of nearly 25 million tonnes in 2018-19 to about 22 million tonnes in 2020-21, largely owing to reduced commitments made to the oil cartel, OPEC plus. In the changed scenario, this country needs to make investments in future only in countries from where it can get regular uninterrupted supplies of oil.

Specifically in the case of Russia, the short-term issue has obviously become more complex owing to the stringent sanctions. But just as in the case of defence supplies, crude oil availability is a strategic requirement that cannot be held hostage by Western countries. A suitable strategy needs to be worked out to ensure that the sanctions can be bypassed in terms of payments as well as physical supplies. Coincidentally, the entire relationship with Russia in the oil sector was expanded just last year in September. Fresh agreements were concluded by the IOC and ONGC with the state-owned Gazprom during the visit of Petroleum Minister Hardeep Puri. This was in addition to the existing investment of $16 billion made by India in oil and gas assets in the Far East and Siberia. Analysts had even argued at the time that India needs to reduce its dependence on West Asian oil by bringing more oil from Russia through the shorter East Asia sea route.

And finally, the long-term aspect of moving away from fossil fuels to renewable energy needs to be given greater urgency. Though the country has been achieving its stated goals for renewable energy capacities faster than expected, the time frame now needs to be shortened even further. This has to be viewed in the context that even oil companies have realised that their long-term existence is being threatened by the need to reduce carbon emissions over the next few decades. Oil majors like Shell Oil are making investments in wind, solar, electric vehicle charging and hydrogen, in a bid to ensure their continued relevance in the future. BP has even pledged to cut output by 40 per cent over the next decade and raise investment in renewables by ten times in the coming years.

The launch of the National Hydrogen Mission last year was an idea whose time has come but much will depend on the speedy implementation of plans to produce five million tonnes of green hydrogen by 2030. Similarly, the push on manufacturers to provide electric vehicles to the market needs to be further accelerated along with a chain of charging stations running across the country. Solar and wind energy capacity are rising, but the truth is, nothing is coming even close to replacing fossil fuels in industry and transportation as yet.

There is thus a short-term need to ensure that hydrocarbon production goes up within the country by giving enough incentives to oil majors to seriously consider oil and gas exploration here. Along with this is the need to ensure that the investments made so far in foreign oilfields are not only expanded but give returns at a time when crude oil prices are surging to multi-year highs.

The long-term outlook, however, mandates that India needs to look towards a future with a reduced dependence on fossil fuels. Not only is that in the interests of the environment and the planet, but also for its own self-interest to shift from heavy dependence on imported oil and gas. The present crisis is the time to revise the long-term hydrocarbon policy, with the aim of moving away from the existing deep-seated dependence on the world oil markets.

#hardeep puri #ongc #ukraine crisis