While you were looking at renewable energy bids, India is courting the global fossil fuel industry.
In global circles fighting climate change, India scores a passing grade.
Take Climate Action Tracker, a website tracking countries’ actions on climate change. Citing India’s ambitious renewable energy targets — 450 GW by 2030 – it says the country is on “track to overachieve its ‘2˚C compatible’ rated Paris Agreement climate action targets”. If the country abandons plans for new coal-fired power plants, the website adds, it could become a global climate leader with a “1.5˚C compatible” rating. What is missing from such analyses is a relatively recent development. Since 2017, a rising number of fossil fuel producers, mostly from Russia, America and the middle-east, have begun entering India, seeing the country as one of the last big markets for fossil fuels.
Global oil and gas majors and their India plans
August, 2017 Rosneft buys Essar Refinery
April, 2018 Aramco-ADNOC announce plans for an Indian refinery in Ratnagiri, Maharashtra
January, 2019 Shell buys out Total from its gas unit at Hazira, Gujarat
January, 2019 Vedanta announces expansion plans for oil exploration/production from India
August, 2019 Aramco in talks with Reliance Industries to pick up 20 percent stake in its petrochemical complex at Jamnagar, Gujarat
August, 2019 British Petroleum and Reliance Industries form a JV for service station network and aviation fuel retailing
September, 2019 Russia’s Novatek ties up with Hiranandani Group to sell LNG in India
September, 2019 Tellurian signs MoU with Petronet LNG
October, 2019 ADNOC and Borealis invest in Adani petrochemical plant
October, 2019 Total picks up 37 percent in Adani Gas
January, 2020 India asks Brazil to sell it oil
February, 2020 Rosneft to supply Urals Crude to Indian Oil
February, 2020 Exxon inks deal to supply gas to Indian Oil
More deals are in the pipeline. Even as American shale gas marketer Tellurian’s bid to supply gas to India flounders, others like Freeport LNG, one of the biggest LNG producers in the USA, are angling to enter India. Aramco, Vedanta, Reliance and Rosneft are expected to bid for the Indian government’s 53 percent stake in Bharat Petroleum Corporation (BPCL). Kuwait Petroleum Corporation wants a stake in its Bina refinery in Madhya Pradesh. As for Oman Oil, a partner in the refinery, it wants to participate in any expansion plans.
These developments have not received the attention they deserve. Most environmental reportage on India’s fossil fuels’ consumption has focused on coal. As for business reportage, it has mostly characterised these deals as an Indian gambit to diversify sources of energy. A related question – on what these deals mean for India’s GHG emissions – has escaped scrutiny. “There will be extra emissions,” agrees Ajay Mathur, the the director-general of Delhi-based TERI, “The question is whether we will see a hiccup or a bloating.”
In this report, the first instalment of a two-part series, Carbon Copy looks at why these companies are coming in. The second part will look at the implications for India’s GHG emissions.
Why Global Oil and Gas Majors Are Entering India
Foreign energy majors have eyed India for long. The country is the world’s second largest importer of coal; the third-largest importer of oil; and the fourth-largest importer of liquefied natural gas. It’s also a regional refining hub, with an installed capacity above 249 million tonnes per annum (4.6 million barrels a day). Now, two new developments have further added to India’s allure.
First, competition is intensifying amongst oil, gas and coal majors. Not only are renewables depressing growth, the shale revolution has turned America, once an oil importer, into an oil and gas exporter. At the same time, as renewable energy prices fall and pressures to decarbonise rise, fossil fuel producers have no more than thirty years to monetise their fossil fuels and re-establish themselves on alternative economic fundamentals. “We have to dramatically curtail our emissions by 2050”, says Tim Boersma, Director of Global Natural Gas Markets at Columbia University’s Centre on Global Energy Policy. “which leaves very little room for fossil fuels.”
The outcome is one where fossil fuel majors are looking east (at fast-growing fossil fuel markets like India and China) and downstream (focusing more on sales than exploration in new markets). Aramco, for instance, is boosting its daily production (12 million barrels a day) by another 1.45 million barrels, and its refining capacity from 5 million barrels a day to 8-10 million barrels. By 2018, the company had announced plans to set up refineries and petrochemical plants in China, India and Malaysia – the three fastest growing oil markets in Asia.
“The Saudis want long-term, sustained offtake of crude by India”, says an energy consultant with PricewaterhouseCoopers in India, “So, they are looking at deals with both BPCL and Reliance.”
Similar compulsions drive Russia and America. As Europe turns to renewables – and, wary of Russia cutting off gas supplies as in 2009, diversifies energy sources — the latter needs new markets. Deals like Rosneft’s purchase of Essar’s oil refining and distribution business are one outcome. As for America, in the last three years, it has embraced the idea of exporting oil and gas – what the Trump White House calls “energy dominance”.
Even as these countries look east (and downstream), a second factor makes India especially attractive. Even before Covid-19, the country’s economy was slowing. Government revenues are now declining in real terms. This has created an outcome where, needing money, the Bharatiya Janata Party (BJP)-led National Democratic Alliance government is willing to privatise the oil sector. Between the government’s need to raise money and private companies – like Essar and Reliance – trying to reduce debt, refining capacities and fuel retailing networks are suddenly on sale.
The consequences run deep.
Something New Under The Sun
When the ownership of a refinery changes, so will its fuel sourcing arrangements.
Till now, Indian refiners have shopped globally for energy contracts. The volume of crude bought was determined by their refining and financial capacity. Once they change hands, however, they will be a part of a larger supply chain with its own objectives.
Take Rosneft. It wants to ship more oil to India. And so, it plans to double Essar Oil’s refining capacity – to 40 million tons a year (or 0.8 million barrels a day). Or take Aramco. Its proposed refinery in Ratnagiri, for instance, is expected to account for 1.2 million barrels a day – almost as much as Saudi Arabia’s increase in production. Apart from these, India is sourcing another 40,000 barrels a day of Urals Crude from Rosneft and an unspecified amount from Brazil. That adds up to an effective increase of at least 1.64 million barrels a day.
Apart from these, India is also amping up gas supply – trying to boost it from the current 6 percent of the country’s energy mix to 15 percent by 2030. Here, even as Shell consolidates its Indian business and Total ties up with Adani Gas, a clutch of American shale gas marketers are signing supply contracts with state-owned firms like Petronet LNG.
These increases are in line with the Indian government’s thinking. Its revised energy projections say India’s oil demand will double from 5.05 million barrels/day in 2020 to 10 million barrels/day by 2030. In the same period, gas demand will treble from the current 150 million standard cubic metres per day (mmscmd) to 500 mmscmd. Earlier this month, Dharmendra Pradhan, India’s oil minister, also said the country will also double its refining capacity from 250 million tons to 450-500 million tons by 2030.
This is where things get complicated.
Supply over Demand
Take ONGC Videsh (OVL). Not only has the state-owned overseas energy exploration company invested in producing fields in Russia and Abu Dhabi, it has also picked equity in an upcoming field in Mozambique. Apart from these, it’s also exploring oil and gas fields in Namibia, Bangladesh, Myanmar and Israel. It aims to boost output from the current 14.833 mtoe (million tons of oil equivalent; about 278,111 barrels a day) to 60 mtoe by 2030. In the past, as Luke Patey shows in The New Kings Of Crude, India has used hydrocarbons from OVL’s fields to earn foreign exchange. A part of the enhanced output, however, might yet flow to India.
Other state-owned oil companies – like Gas Authority of India, Bharat Petro Resources and others – are also seeking stakes in fields overseas. The government has also directed Coal India to boost coal production to one billion tonnes by 2024 – up from 600 million tonnes in 2018-19. It has also began auctioning coalblocks to commercial miners. Some of these blocks are very large. Odisha’s Siarmal coalblock, for instance, can produce 50 millon tons of coal a year for the next 30-40 years.
Apart from that, India has an ambitious renewable energy target (450 GW by 2030, up from the current 86 GW of installed capacity); aims to boost hydel power to 70,000 MW by 2030, and an electric vehicle policy which wants all three-wheelers to go electric by 2023, two-wheelers by 2025, and a third of all cars by 2030.
Can India absorb all this energy? “The government’s projections assume oil demand will grow at 8 percent annually and gas demand at 11 percent between now and 2030,” a Delhi-based energy researcher told Carbon Copy on the condition of anonymity, “What is the rate of GDP growth, between now and 2030, these numbers are based on?” According to the researcher, India’s gas demand projections are especially unrealistic. “Growth in gas demand between 2012-2019 was -0.8 percent. Seen from 2014 onwards, it is 3 percent CAGR. To reach the government’s target, (we) will need some insane push. Current measures won’t be enough.”
Indeed, in a working paper published last year, India’s Niti Aayog projected a doubling of India’s energy demand between 2017 and 2042 — from 600 mtoe to 1200 mtoe – driven largely by industrial growth. Given India’s total energy demand increased by 50% between 2007 and 2017 with half the increase attributable to industry, NITI Aayog’s projections didn’t seem too off the mark. However, India’s growth first slowed after the 2008 slowdown, and then braked further due to demonetisation and a botched rollout of GST.
Covid undermines these assumptions further. Its implications on the global energy sector will take time to become clearer. On one hand, thanks to the abrupt fall it triggered in energy demand, fossil fuel majors are cutting back on production. There is also talk that peak demand for oil might arrive sooner. At the same time, however, fossil fuel companies are better placed to wait out the economic slowdown than relatively smaller renewable energy firms. “We do not know what energy demand in a post-Covid world will look like,” adds Swati DSouza, an Oil and Gas consultant at Brookings India. “A number of projections, including in oil and gas, will need to be revised.” For now, India’s “all of the above” approach to energy policy points at a deeper sclerosis. Each energy ministry is bullish on its domain. The Ministry of Coal pushes coal. The one for Petroleum and Natural Gas pushes oil and gas.
In the absence of quicksilver GDP growth, however, India will face a glut of oil, gas, coal and renewables. The country is already seeing one in coal, with the government asking companies to replace imported coal with domestic coal. In the absence of a clear policy on the energy mix India needs, the country will fall back on price signals to navigate this glut. How that plays out has large implications for India’s GHG emissions. More on that in the second part of our series.