As India simultaneously bets on oil, gas, coal and renewables, what is the outlook for the country’s GHG emissions?
The first part of this report, published on Saturday, flagged a puzzle.
On one hand, global oil and gas majors, including the likes of Rosneft, Aramco, Exxon and a clutch of American shale gas producers, are looking to buy Indian refineries or sign energy supply contracts with Indian companies. They expect their next burst of growth to come from India. These expectations are in consonance with the Indian government’s energy projections. By 2030, these say, India will see oil consumption double and gas demand treble.
What muddies this picture are India’s equally ambitious plans for coal and renewables. Coal India, the state-owned miner, has been told by the government to boost annual coal production from the current 600 million tons to a billion tonnes by 2024. Another forty-one coal blocks are being handed over to private miners. By 2030, the country also wants renewables to produce 450 GW of power; and wants all three-wheelers to go electric by 2023; all two-wheelers to follow by 2025; and a third of all cars by 2030.
The contradictory nature of these targets – simultaneously pushing fossil fuels and renewables – adds up to more than just an indictment of India’s energy policy. People trying to steer India towards decarbonisation fear the country’s energy transition will get delayed.
Where is India headed?
In the absence of policy, price signals drive energy transitions.
Oil, mostly used for transport, competes with gas (CNG buses and LPG cars) and electric vehicles. Coal, mostly used for power generation, competes with renewables and gas. In both, green technologies have been slowly gathering competitive advantage.
That will change now. Once global energy majors invest in India, says former petroleum secretary TNR Rao, they will want India to stay on fossil fuels for as long as possible. In order to do so, each will have to ensure its fossil fuels are cheaper than the fuels they compete with, says Ajay Mathur, the director-general of TERI, a Delhi-based environment research organisation. India, he says, will see more demands like the current one to abolish the coal cess levied on thermal power projects. “Our petroleum prices are too high,” he added. “Once in India, these companies will fight for oil prices to be deregulated.”
Is that feasible, though? India’s economy is slowing, and a significant part of the government’s earnings come from duties levied on petroleum products- particularly petrol and diesel.
“We have deregulated lubricants,” Mathur continues. “We might deregulate premium petrol. And what will you buy if premium petrol is cheaper than regular petrol?”
What complicates things are the geopolitical implications of big-ticket energy deals. Firms like Aramco and Rosneft are close to the political leaderships of their countries. American shale too shows a strong intertwinement between industry and US politics. Heads of states will weigh in on these negotiations. That will change these negotiations.
In return for more unfettered market access, India’s political leaders might win concessions elsewhere– like diplomatic support. Compounding matters further, few of these firms are entering India alone. Total has tied up with Adani; BP and Exxon with Reliance; Novatek with Hiranandani; and Rosneft with Essar. This also bulks up their negotiating muscle – and helps these Indian business groups further consolidate their position in India.
Given such processes, Mathur expects India’s oil consumption to rise steeply over the next ten years. “That will be followed by global pressure on the country to reduce oil consumption.”
Can Covid change this?
For folks in the renewable sector, COVID 19 seems like good news.
The global pandemic triggered an unprecedented collapse in demand, and prices, of crude oil. Studying the impact of oil selling at $35 a barrel on companies’ investment plans for 2020, energy consultancy Wood Mackenzie found three out of four projects couldn’t even cover their cost of capital. At $20 a barrel, it said, the industry would be decimated.
Is this an opportunity, as climate activists say, for India to decarbonise faster? It’s hard to say. Not only can industries like shale wind down and scale up in months, the pandemic has also impacted each fuel differently. “Electricity is less affected than oil,” says an energy consultant with PricewaterhouseCoopers, on the condition of not being named. “Solar might gain but other renewables still finding their feet – like biofuels or agri-waste being converted to energy – might take a beating. They get support only when oil is costly.”
In sector after sector, as economies sink due to Covid-enforced lockdowns, smaller players are more imperiled than bigger ones. In the energy sector, that is the renewables industry– not the likes of Exxon, Rosneft and Aramco. Bigger companies, at most, will rethink their plans for fresh investment. Aramco might decide not to build its refinery in Ratnagiri and instead expand its refinery in Saudi Arabia – or buy finished products from defunct refineries and ship those over.
It might even acquire renewable companies to hedge its future.
What the short-term looks like
In mid-April, a consortium of five companies (Softbank, Axis Energy Ventures, O2 Power, Eden Renewables and Avaada Energy) won a 2GW tender floated by the National Hydroelectric Power Corporation after bidding just Rs 2.55/KwH.
Such bids tell the tale of steady decarbonisation. But, as India doubles down on fossil fuels, we will see something different. Not only will oil, coal and gas majors manipulate prices to stay competitive over electric vehicles and renewables, the country will also see rising competition between fossil fuels (and, by extension, between the countries producing these). In power generation, for instance, gas will struggle to compete with domestic coal, says B Prabhakaran, the founder of Thriveni Earthmovers, one of the largest contract miners in India, but will be more competitive than imported coal.
We will also see rising competition between the countries exporting each fuel. In some ways, says Mathur, our situation now resembles that before the Second World War. “Burmah Shell was the major oil seller in the country. And then, the USSR entered and began selling oil at cheaper rates.” In response, Britain stopped overland pipes carrying oil from Russia to India, forcing the USSR to take the long route around. A lot of cut-throat competition.”
It’s not clear, however, how long such a phase might last. In the coal sector, over-invoicing is now an established strategy used by Indian power companies to get around price-competitiveness issues of imported coal. In 2018, the central government’s controversial decision to accept a plea by Adani, Tata and Essar that Indonesia’s hike in coal prices had left their projects unviable resulted in higher power tariffs for state DISCOMs and power users.
Or take India’s City Gas Distribution (CGD) bids, currently awaiting the 11th round of auctioning. Meant to absorb a large chunk of gas India is importing, these auctions have been held even before the infrastructure or gas supply contracts are fully in place. In the absence of clarity on both, we do not know when gas will eventually reach these networks – nor what customers will have to pay. “If it is too high, households might not shift from their cooking gas to LNG,” a senior executive at Swan Energy, a company in the natural gas sector, told me last year. Nor might, he added, car-owners move from petrol or diesel to gas.
Some of these projects will struggle to compete, first with rival fossil fuels, then with renewables. And, eventually end up as stranded assets.
In the short-term, however, as fossil fuels compete with not just renewables but also each other, India’s energy transition will see a delay. As the first part of this series asked: will India see a hiccup or a bloating in fossil fuel demand? And what are the climate consequences of that delay? India’s climate activists have their work cut out. “The biggest question in all this is user cost trajectories,” says Mathur. “We need to oppose anything that delays those trajectories from kicking in.”
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