Affordable, reliable and accessible oil and gas lies at the core of India’s strategy, energy minister Hardeep Singh Puri told Petroleum Economist in a private meeting on the sidelines of the OPEC International Seminar in Vienna.
While India’s opportunistic oil buying from Russia in the past three years highlights the country’s honest and common-sense approach to cheap, secure energy supplies, what has happened both before and after should guide the way forward—including diversification, investment and cooperation.
Puri stated that India “has a committed political leader, whose primary and moral duty is to provide energy to his citizens, and I think the good news is that we are in a reasonably comfortable position”. He highlighted the uncertain backdrop, noting that “this has been probably the most turbulent phase in terms of geopolitical developments” since the Second World War. But India has been making all the right moves to provide energy security.
“We have diversified our sources of supply. We used to buy from 27 countries; we are buying from 40 countries. We have enough reserves and we have enough sources of supply,” Puri pointed out. He also stated that, in the unlikely event that the Strait of Hormuz is closed for any period of time, India has contingencies in place for where it can obtain crude.
Puri explained that Middle East producers will be important partners for “decades to come” but that, with the evolution of the global situation, India’s oil companies both in the private and state sector will look to buy the right crude grades from the cheapest source.
Indeed, anecdotal evidence this year suggests India’s refiners are snapping up more non-OPEC crudes, including a sharp rise in US grades, even with the additional transport costs.
Puri’s message was clear: it is all about being adaptable.
Building up reserves
The minister also explained how the country’s oil buffers provide a crucial level of support and that more backup is on its way.
“We took a decision long back that we were going to increase the size of our strategic reserves,” Puri noted. “We said our strategic reserves will reflect the global norm, and I think the global norm is 90 days. We do our calculation, and in a somewhat more comprehensive manner, which includes elements such as the oil which is on barges on the coast and what oil is in refineries, and all of that taken together.”
Puri said India’s reserves are at 77 days but that the government is enhancing that figure and developing new locations for strategic petroleum reserves. “And by the way, when oil prices are reasonable, that's a good time to fill up your reserves,” he added.
On the upstream side, Puri was clear that actions have been speaking louder than words for almost the past decade.
“If you go back to 2016, we went from production-sharing arrangements to revenue-sharing arrangements… Our old law of 1948 covered both,” Puri said. “The new legislation… essentially incorporates best practises of other countries, and we have had very wide stakeholder consultations. We have been able to ensure that all the people who have an interest, including those who are potential investors… are all happy with it,” Puri added.
“Even [with] the regulation that we are drafting under that new law, we are having stakeholder consultations. So there is a new desire by India to reach out,” the minister said.
Upstream transformation
There is also another major upstream change. India appreciates the fact that E&P is expensive and that its own oil companies are spending substantially. For example, ONGC dug 541 wells this fiscal year, which is the highest number in 37 years.
The company is pushing ahead with expansive exploration plans that aim to transform domestic oil production and scale up its areas under exploration to around 500,000km² in the long term.
ONGC also continues to explore and develop acreage offshore India’s east and west coasts that were awarded as part of the country's Open Acreage & Licensing Policy.
Puri said the important factor is “the number of discoveries that they have made and 18 of them that have been reported to the director-general of hydrocarbons… if you look at all those, it is clear that you are heading in the direction of a major discovery.”
Indian oil companies are forming partnerships with international players such as BP, Shell and Petrobras where the companies bring in their offshore skills and if they strike oil they get the right to first refusal. Puri added that “there is a real buzz and expectation in India’s upstream sector”. Now the question is whether India’s oil sector will have a “Guyana moment”, which the minister was confident will occur.
India’s refining sector appears as if it will go from strength to strength, meeting the evolving needs of the consumer both at home and abroad.
India's refining capacity is set to expand by more than 20% over the next three years, as growing domestic and overseas demand for oil products is pushing existing refineries to run at over 100% capacity, Puri said.
India's refining capacity utilisation is set to rise from 256mt to more than 300mt by 2028 and up to more than 400mt at some point to meet global energy needs, Puri believes.
“Our petrochemical consumption, if I am not mistaken, is one-third of the global average,” he noted, adding that refining capacity has to be seen in the context of what is happening in the world.
“I do not see small, teapot refineries continuing. You will see the world having three or four major refining hubs, and India will be one of them,” Puri added.
“Do not forget, we are not just refining crude oil for our own consumption. We are also a major exporter and, in the years to come, I think refining capacities of the world will rationalise,” he explained, pointing to shifting long-term trends away from a Western downstream sector to one revolving around Asia, the Middle East and Africa.
Gas targets
On the gas side, Puri recognised the aim to raise the share of gas in India’s energy mix to 15% in 2030 from about 6% currently is “a bit optimistic”. India’s government has had ambitious plans to build out gas infrastructure, including the expansion of National Gas Grid and the development of the city gas distribution network.
Puri was matter-of-fact that gas prices need to come down to incentivise demand and make a quantum shift. But he was confident more gas would become available in the coming years not only from traditional suppliers but also from new entrants.
Comments