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To avoid a slippery path, India must cut down on oil import from the middle east

10-Apr-2018
To avoid a slippery path, India must cut down on oil import from the middle east

India’s growth story has created a buzz in the world; economists and political heads have acknowledged the remarkable development. India’s economy grew from $802 billion in 2000 to $2131 billion in 2014, registering a robust 2.65 times growth, compared to the world economy growing 1.47 times. By 2016, the Indian economy had expanded to reach $2.26 trillion. Owning to steady economic growth, India’s energy demand has been constantly growing since the beginning of the 21st century. India’s energy demand is primarily fossil fuel based. Heavy dependence on coal and oil results in rising greenhouse gas emissions; which needs urgent attention. Economic expansion demands more energy; naturally higher demand for oil.

The government has been pushing for reducing oil import; however, the import statistics suggest otherwise. India’s crude oil import grew from 58 million metric ton (MMT) in 1999-2000 to 214 MMT in 2016-17, registering a compound annual growth rate of 8 percent during the period. India heavily depends on Middle-East countries like Saudi Arabia, United Arab Emirates, Iraq and Iran for crude import. These countries contributed 58 per cent of India’s crude import in 2016-17. Often, this level of high dependence bothers most of us. Hence, the Prime Minister has called for a reduction in oil import. India’s objective of achieving 10 per cent crude oil import reduction by 2022 is largely dependent on increasing domestic oil production. India’s E&P sector needs massive investment to overturn the declining domestic oil production. Current scenario suggests that overdependence on imported crude is going to continue for a couple of decades. However, efforts should be made to minimise overdependence on any country or region.

India must bring down crude import to reduce trade deficit and improve the fiscal condition. Rising crude prices could badly impact consumers; hence, efficient crude import management is the need of the hour. Efficient sourcing of crude improves gross refining margin.  Currently, Indian refiners are well equipped in terms of better refinery complexity to process heavy and sour crude available all across the globe. Therefore, refiners have started to diversify and optimise their crude purchase basket. Further, refineries must revisit their product mix to optimise return on investment. In this context, increasing production of petrochemical products could certainly improve gross refining margin. Refiners must exploit foreign markets and increase export of high valued finished products to improve trade balance.

To boost domestic oil production, the government has taken multiple steps, including introduction of Hydrocarbon Exploration & Licensing Policy (HELP), Discovered Small Field (DSF) Policy, National Data Repository, and Hydrocarbon Resource Reassessment study. These initiatives are intended to attract investment, boost domestic production, and generate employment. Unfortunately, E&P activities remained stagnant for a period beyond expectations.

Investor-friendly policies, including marketing freedom and attractive royalty rates, offered under HELP must bring results in line with target. In recent times, stronger oil demand coupled with declining domestic oil production in the country resulted in higher import — contrary to the ambitious target of crude import reduction. It is fair to argue that there is an urgent need for turnaround in the E&P sector, without which 21 MMT import reduction is simply a distant dream.

It is understandable that the E&P domain is far more complex, challenging, and riskier than it looks to the common man. Therefore, government’s initiatives are targeted to achieve long-term returns rather than short-term goals. Many reforms have been implemented to attract investment, bring much desired transparency and rules-driven E&P business. India has been targeting nations like Saudi Arabia and United Arab Emirates, members of Gulf Co-operation Council to heavily invest in the petroleum sector, including upstream business. If India’s oil-investment diplomacy succeeds, domestic production would rise, resulting in import reduction.

Bidding under Open Acreage License and Discovered Small Fields (DSF) received reasonably good response from investors. However, the actual impact on production could be seen in the next five years. DSF policy offers opportunity for entrepreneurs to enter into E&P business and co-exist with established players. In DSF Round-I 15, new entrants were attracted, which certainly builds confidence for the second round of DSF bidding. The government is truly serious about developing a path for entrepreneurs in the E&P business, which augurs well for the industry.

I feel, India’s over dependence on Middle-East for oil is expected to continue in the near future. Oil rich nations are always exposed to geopolitical turbulence. Unrest in Venezuela resulted in crude supply cut, which impacted India’s import from Venezuela. But for the time being, availability of US crude offers opportunity for Indian buyers to diversify their oil purchase basket.

Time has come, India must reduce oil-import dependence on the Middle-East. Focus should shift towards investing in oil & gas assets abroad and getting back equity oil & gas. Nations which offer promising opportunities include US, Russia, Canada and many African nations. Steps taken by the government, including expansion of renewable energy generation might bring anticipated results in the long-run, which could help reduce oil import.

Source:-Dnaindia.com

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