Lok Sabha TV- Public Forum : India’s Oil Strategy

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Lok Sabha TV- Public Forum : India’s Oil Strategy


 

 

India is one of the major oil consumers in the world. It depends on imports to meet 80% of its oil needs largely from OPEC’s production. India’s energy import bill is close to 150 billion dollars and may double by 2030. According to International Energy Agency, India’s demand for oil is also expected to expand to 10 million barrels per day by 2040 that means India may become the fastest growing crude oil consumers in the world in the next 23 years. The Union Cabinet has approved awarding 31 newly discovered small oil and gas fields in its first auction in 6 years. The idea is to entrust more of these blocks to new entrants in order to boost local production. According to the Director General of hydrocarbons, the awarded blocks will boost India’s oil output by as much as 15000 barrels of oil per day and gas production by 2 million standard cubic metres a day. Development of small oil and gas field is crucial for Prime Minister Narendra Modi’s plan to reduce oil imports by as much as 10% by 2022 and thereby, making further reduction of such imports to half by 2030.

Analysis:

It is believed that India’s oil demand growth will outpace that of China. Its domestic demand may grow by 0.4 million barrels a day this year and by 0.2 to 0.3 million barrels a day next year. Whereas China on one hand has taken advantage of the fall in international oil prices and went ahead with the massive stock piling plan, India on the other hand has not done much to improve its oil storage capacity due to political indifference. US also invested hugely in oil resources. Since India buys oil from international market at the last minute at the time of crisis, it further adds to volatility in prices.

The Finance Minister in his budget speech this year said that the Government wants to create an integrated public sector oil major as part of the PSE reforms in order to match the performance of international and domestic private sector oil and gas companies. The merger if done will make it a bigger and broader asset base. This will attract more investment. It will give the oil sector the financial muscle to take up huge capacities of drilling and storage which is very important as India has very little storage capacity. Piping capacities within the country is also less. This will also help to curb the oil volatility in terms of pricing and availability.

ONGC is a producer, MRPL is a refiner, HPCL has good marketing strategies therefore, if they are merged together, there will be an integrated supply chain. Companies functioning in bits and pieces will not be able to compete globally. This idea was presented a decade ago. India is not geologically endowed with oil resources to meet its requirements. There is no method of development at present that is independent of energy sector. Skill, technology and resources are required to match with the global competition. Indian companies as compared to global companies of US, Russia, China, Saudi Arabia etc are very small. Therefore, merger is important.

Tank farms for storage of oil near ports might be beneficial because it will lead to quick storage and will not take years to create those storage. A good connectivity to major consuming centres through pipelines is also required for both strategic and commercial storage.

Conclusion:

Oil is likely to remain a critical source of energy at least in the near future. Even the carbon footprint is much lesser with the use of oil as compared to coal. It is not only the OPEC countries but the huge trading cartel also formed by the global banks and by companies like BP and Shell which have a big role to play in volatility of oil prices. Therefore, India needs to have its own energy security and storage system. Apart from oil, India also needs to look into its gas reserves because it is the most eco-friendly source of energy among fossil fuels.