BackIndia leveraging oil imports for market access
India wants to link its growing purchase of crude oil to establish a oil and gas industry value chain overseas
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New Delhi: India is leveraging its clout as the world’s fourth-largest energy consumer to secure market access for the domestic energy companies overseas.
As part of the new strategy rolled out after the National Democratic Alliance (NDA) assumed office last year, India wants to link its growing purchase of crude oil to establish a oil and gas industry value chain such as refining, pipelines, fuel retail, and engineering, procurement and construction contracts in the energy-rich geographies.
In an interview, petroleum minister Dharmendra Pradhan said, “We have firmed up our strategy that this relationship can’t be mere a buyer-seller one, but be converted into a strategic relationship with the concerned nations. This is the major paradigm shift by this government."
India’s emergence as the fourth largest consumer of energy in the world has coincided with a collapse in global oil prices. The resulting buyer’s market has only strengthened India’s negotiating power.
Pradhan articulated India’s intent during his interactions at the Organization of the Petroleum Exporting Countries (Opec) meeting earlier this month and in other bilateral exchanges. Pradhan has visited 18 countries after taking over the strategic ministry.
“As I said, we are one among the major buyers, importers and a key consumer so we have a leverage. We have a leverage in that area. From the countries from where we procure crude oil, we have told them we have E&P (exploration and production) investments in many countries... We want to link the favourable investment scenario to crude procurement. We will procure oil and also be allowed to make investment," he said.
India imported 189.43 million tonnes (mt) of crude oil in the last financial year. India has emerged as a major Asian refining hub, with an installed capacity of 215 million tonnes per annum (mtpa).
“We are talking to everybody. Recently, I have been to Colombia, Mexico, Mozambique, Nigeria, to Opec. I have talked to so many countries. In Russia also," Pradhan added.
India follows the US, China and Russia in energy use, accounting for 4.4% of global energy consumption. Petroleum product consumption in India has been growing. According to the ministry of petroleum and natural gas, consumption grew by 3.14% to around 163.17 million metric tonnes in 2014-15.
In response to a question about Indian firms opening retail outlets overseas, Pradhan said: “In African countries we can do that...we have discussed with Colombia and Mexico. Though they are developing countries, there is space. We are preparing (our companies). The prime minister has given a clear mandate—be MNC. PSU (public sector units) can be an MNC (multi national corporation)."
“Refining is now India’s domain. In world oil and gas sector, crude oil refining is an unique capacity of the Indian industry; whether it is private sector or the public sector. We want to leverage the complexity of refinery management to increase our stakes in their midstream as well," Pradhan added.
This strategy is also being explored in attracting investments from the hydrocarbon-rich countries. A case in point being the world’s biggest oil producer, Saudi Arabian Oil Co., or Saudi Aramco.
“Petrochemical is another area where we can go and also bring investment in our country. We are talking to Saudi Aramco that we will source their crude, you are our good partner, also come and invest in our petrochemical sector. The talks are on. We are on positive track," Pradhan said.
India is one of the major consumers of Opec production of which Saudi Arabia is a member, with the grouping accounting for 85% and 94% of India’s crude oil and gas imports, respectively.
“The per capita energy consumption is still very low. That means that our economy is growing, our appetite is growing, our requirement will grow. As of today, we are a low consuming nation. There is a huge market for energy. But when you have a huge requirement, you are a huge buyer. In today’s world, buyer is the king. India is in a very advantageous position," said Pradhan. “India is going to benefit from this scenario."
According to the International Energy Agency’s World Energy Outlook 2014, India’s oil demand growth between 2013 and 2040 would be the highest in the world—with a compounded annual growth rate of 3.5%. Also, according to the provisional estimates released by the Central Statistics Office, GDP grew 7.3% in 2014-15.
Extreme volatility has marked crude oil prices, which reached a record $147 per barrel in July 2009. Oil prices are currently subdued. Crude oil prices in the Indian energy basket averaged at $59.07 per barrel in April, as against $84.16, $105.52, $107.97 and $111.89 in 2014-15, 2013-14, 2012-13 and 2011-12, respectively.
India is trying to reduce the country’s dependence on oil and gas imports, which account for 80% of all petroleum products consumed and 70% of the total natural gas consumed in the year ended 31 March, according to the Petroleum Planning and Analysis Cell. Prime Minister Narendra Modi wants imports to be cut by half by 2030.
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