‘We have our first tranche of 1.3 million MT of oil now, but the aim is to get to 5 million MT’
With oil prices at an all-time low, India is shoring up its reserves and its refining capabilities, says Soumen Bagchi, Joint Secretary (Energy and Security)
India’s major challenges are not particularly oil-related. We are perhaps the one country with the largest percentage of the population without electricity and the largest percentage of the population without access to modern cooking fuels. The figure for the first one is 300 million out of what is estimated globally at 1.3 billion and for cooking fuels it is estimated at around 800 million which is really very large as compared to the global figure of 2.8 billion. So that is and has been and will be any government’s biggest challenge as far as energy is considered – to provide to all basic energy security, reliable and within reach of all. That is the core of how we look at the energy situation currently.
Oil doesn’t play a role and is not expected to play a role in electricity generation in this country. Natural gas does to a certain extent, whether it will continue to play that role in coming years will depend a lot on the economics of natural gas and on its comparative resources and other competing sources of electricity. How oil relates to the cooking fuels and the other challenges is quite important, we would like LPG penetration to increase across the country so that the solid biomass which is used for cooking goes down progressively. If you look at oil, the International Energy Agency (IEA) in its recent India report a couple of months ago said that India’s demand is slated to reach around 10 million barrels a day in 2040, which is around China’s demand today. Our current demand hovers around four million barrels a day. If India’s input demand is around 80% today, it is going to rise to 90%. That is not a healthy situation for any country or any economy – to be heavily dependent on a basic source of energy.
The question arises: what do we do about it? How do we look at substituting oil with other things to meet our energy needs? This should be the major concern on the way forward.
As far as oil prices are concerned, we have to look at things or the world in reality and not as we would like them to be. The oil price dynamics are cyclical, the prices were down in 2004 and again in 2008-09, and they are down now. We have gone through periods of $120 -130 per barrel and spent as much as $160-170 billion on import and now the expense is down to around $80-85 billion. You can take it as a mixed blessing. It may not be all positive but I would look at this as an opportunity for India to build up its reserves. Last year, when the Chinese growth rate was tapering off, people were wondering why Chinese oil import rates were not going down. Where is that oil going? The economy is not growing as it has been in earlier years. The Chinese were building up reserves at a rapid pace.
We have begun to build up our reserves. We have our first tranche of 1.3 million metric tonnes of oil in Visakhapatnam now, but the aim is to get to five million metric tonnes. Three will be coming soon, in a couple of months. But that would be only about 10-12 days of imports. With the oil price down to the level it is today, this is the time we, in whichever way, should build strategic reserves or storage offshore, whether in other countries which have ready infrastructure or through other countries’ financing the infrastructure on our soil. Or we do it ourselves – through the private or public sector.
The price might stay low for long. Three years, five years, it might never go up again beyond $100 a barrel but, again, it may. It is a most risky thing to forecast the future price of oil. But it will rise, consumption will go up. Investment by oil majors around the world has gone down, it has been cut back sharply in future investment plans. There is still a debate on what is the right price for American Shale Oil to be profitable, but in two of the major basins in North Dakota and Texas production has dipped from July-August onwards and therefore there is a challenge as far as Shale oil is concerned with the current prices.
Our domestic Exploration and Production (E&P) efforts are being accelerated by making the investment regime more attractive. Though one cannot rule out a miraculous oil and gas discovery in the future, India will import a large percentage of its oil in the future and whether it is 90%, as the IEA predicts, or 70% or 60%, the truth is that these are all very high figures and there is a need to look at substitution of this commodity.
The topmost consumption of fuel is by the transport sector, which uses high-speed diesel (HSD). Then there is a reasonably big chunk in the agricultural sector followed by industry. With electrical vehicles and with increasing storage capacities in batteries we can focus on them as a move away from gasoline. We should carry on these efforts even if oil prices fall to $10 a barrel as they may rise again. Today, 65% of our freight is transported by road and 30% by rail and the rest by water. The rail network is one-third of the road network and waterways are less than even railroads. So a shift in expansion of the rail network and expansion within that of the electrified rail network can make a big difference to the biggest consumer of diesel – trucking.
If you look at personal or urban transportation, everybody is aware of the solution. Public transport is the way to go and that again can be electrified. Also, there are four or five lakh cellphone towers in the country. Several are in places where there is no reliable electricity supply so there are diesel gensets powering them. With a combination of solar and conventional electricity supply, this diesel consumption can be brought down. India’s energy security essentially lies in making ourselves as self-sufficient as possible in the energy sector and also by reducing the quantum of what is being imported from our energy mix. Our companies have invested abroad in oil fields and they have got participating interests around the world in oil and gas fields, but we are still importing 80% of our requirement and that has to come down.
In the oil sector we have also done very well as far as refining is concerned. We are today the world’s fourth biggest refiner, having capabilities in both the private and public sectors which is again a very healthy thing. Our new refineries have among the highest complexities in the world: they are able to process over 200 grades of crude oil. We are also very well-located geographically. For Africa and West Asia, the demand centre is East Asia. We are aptly located to be the refining hub for the world. The higher the price of refined oil, the higher the refining margins.
As incomes are in foreign currencies, it is a great way of offsetting some of these huge import bills that we have in foreign exchange due to import of crude oil. We have to become very aggressive in refining and as an oil technical consultancies hub.
(Text of his speech at the Hardnews Seminar.)