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Photo: Bloomberg
Photo: Bloomberg

India could get a better deal for its oil imports

Prime Minister Modi has highlighted India’s growing clout as an energy importer. With global trends going against OPEC, this oil cartel should pay closer attention to our needs

The novel coronavirus that brought motorized movement across much of the world to an abrupt halt also saw daily demand for fuel evaporate by millions of barrels. Combustion engines under the hoods of road vehicles have seen sputters of re-ignition since, but a large share of aircraft jets remain idle, as also railway locomotives and other machines whose thirst for hydrocarbons seemed insatiable not long ago. Now that mobility in India has regained some of its disrupted momentum and global trends point to a future of cleaner energy, our country’s relative significance as a market for oil looks set to go up. The broad scenario could not have been better for us to signal this gathering clout, as Prime Minister Narendra Modi did on Monday. Speaking at a virtual energy conclave attended by Saudi oil minister Prince Abdulaziz bin Salman, whose voice within the Organization of Petroleum Exporting Countries (OPEC) cannot be overestimated, Modi outlined a national plan that would contain our carbon footprint, increase the use of gas as a fuel, and hike our annual oil refinery capacity from 250 to 400 million tonnes in a few years. With India’s crude imports projected to rise robustly, he expressed the hope that OPEC would not squeeze supply unfairly, and made a pitch for sweeter deals in terms of lower prices and longer credit periods.

India is already the third largest oil importer in a world trying to give up on it to reduce carbon emissions. The worldwide covid compression, meanwhile, has been drastic. According to data from the International Energy Agency, global demand from January to July was 10.5 million barrels per day below last year’s average level, estimated at just above 100 million barrels. The year 2020 is expected to end with an overall contraction of 9%, and global consumption is expected to reach pre-covid levels only by 2025 if the pandemic is not quelled by next year. While this shock has thrown awry the production plans of the OPEC, long-term forces have been going against the Saudi-led cartel. The US success with shale oil has turned it into a producer rivalling Saudi Arabia’s capacity of about 10 million barrels a day, and while a power shift in the White House may slow down fresh American drilling, it no longer depends on OPEC oil. The planet’s other great guzzler, China is reportedly aiming for net-zero carbon emissions by 2060, and some analysts expect its oil usage to peak at about 14 million barrels in five years. Japan hopes to achieve its net-zero goal a decade sooner than that. Indian consumption, thus, is of high importance to OPEC.

By a rough estimate, our market accounts for one of every 20 barrels consumed globally. If our economy gets onto a revival path, this share could expand fast enough to impress upon OPEC, the source of about four-fifths of our inward crude shipments, the value of a commercial relationship that serves each party’s interests well. This does not suggest that India is prepared to slurp up the oil that other countries resist. We have our climate agenda, too, and the burning of fossil fuels is clearly harmful to the planet. So, even as we expand our facilities to refine crude oil and exploit the potential of natural gas as an energy source, we must invest in a cleaner mix for the decades ahead. Beyond electric vehicles, we should explore hydrogen fuel cell technology. But for now, benign rates for oil imports and better terms of credit would do just fine.

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