Analysis: Low oil prices: It’s time for India to incentivise industry, strengthen energy security

Petroleum Minister Dharmendra Pradhan is luckier than many of his predecessors, thanks to overtly considerate crude oil prices.

Black gold prices are at their lowest best in the recent past due to multiple factors including the unknown enemy Covid-19 that has rocked the global economy. The time is right for Pradhan to turn this into an opportunity to strengthen India’s energy security by incentivising the domestic oil and gas industry.

Need for more reserves

What should Pradhan do? First, there is a need for a concentrated effort to build more strategic petroleum reserves (SPR). Every delay in decision making matters. While the minister has been making frequent reviews, there have been a few hitches. It is time to take action rather than get stuck in bureaucratic glitches.

At present, India has 5.33 million tonnes (mt) of SPR capacity across three locations — 1.3 mt at Visakhapatnam, 1.5 mt at Mangaluru and 2.5 mt at Padur (Karnataka). The Ministry has allowed public sector oil refiners to use the SPRs for storing their purchases as well as to buy for the government.

Pradhan has instructed India Strategic Petroleum Reserves Ltd (ISPRL), a special purpose vehicle under the Ministry mandated to build and operate SPRs, to augment the storage of crude. A move in the right direction, but the government is yet to open access for domestic refiners to use the oil in SPR for commercial purposes at a cost.

Import reduction strategy

The Ministry has been working in collaboration with various Central government ministries/State governments and other stakeholders to make efforts to trim oil import dependency. More than 80 per cent of India’s crude oil requirement is met through imports.

The import reduction strategy broadly includes increasing domestic production of oil and gas, improving energy efficiency and productivity, giving thrust to demand substitution, promoting biofuels and using alternative fuels/renewables.

The Centre constituted a committee for ‘Preparing a roadmap to reduce the dependency on import in energy by 10 per cent by 2021-22’. The report submitted by the committee and accepted by the government envisages a five-pronged strategy. This broadly comprises increasing the domestic production of oil and gas, promoting energy efficiency and conservation measures, giving thrust to demand substitution, capitalising untapped potential in biofuels and other alternative fuels/renewables and implementing measures for refinery process improvements. And yet there are miles to go.

Hunting for assets

While enhancing the domestic production of oil and gas has remained a constant challenge for the companies as well as the government, India could further push for acquiring oil and gas assets abroad. If not acquiring an asset, it may consider increasing a stake in the existing assets given the low oil prices — the right time to hunt.

India has, for some time now, aimed at emerging as a major refining hub. It currently has a refining capacity of 249.35 mt per annum. Pradhan has often expressed optimism about the domestic refining industry.

In fact, at the inaugural session of the 22nd Refinery Technology & Petrochemicals Meet (RPTM) in January 2018, he had called upon the nation’s public and private sector oil and gas to add at least 200 mt of refining capacity in the next two decades in order to maintain India’s position as the hub of Asian refining and product export.

This can be attained by using advanced technology and a conducive policy environment including creating a level playing field between public and private sector players.

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