Explained: Why 'atmanirbharta' flows against oil security for India

Instead of relying on negligible domestic deposits, India should be securing steady supplies from abroad

Last week, Indian Petroleum Minister Dharmendra Pradhan ticked off Saudi Arabian energy minister Abdulaziz Bin Salman for an “undiplomatic” comment on oil prices. Pradhan had said last month that international crude oil prices were running too high to which the Saudi minister had tartly advised him to dip into the strategic oil reserves India had bought at about $19 a barrel last year.

It was a barb no doubt. India’s strategic reserves, run by Indian Strategic Petroleum Reserve Limited, have a combined capacity to meet just about 21 days of requirement for the economy. But it was a wakeup call that India is not aligning its need for energy security with some hard choices. Energy security for India should not mean digging more wells with negligible deposits but instead securing steady supplies from abroad. 

It is a good time to think so. Abu Dhabi has a futures market for oil — Murban crude futures — this week. A market mechanism instead of a cartelised pricing that the Organization of the Petroleum Exporting Countries (OPEC) practises can give mega buyers like India more space to capture value from the trade.

Petroleum ministry data shows India expects to spend Rs 1.77 trillion to prospect for oil and gas up to 2025. Not bad compared to earlier years but to put those numbers in perspective, ONGC will spend Rs 32,000 crore per year to find new sources. PetroChina plans to spend Rs 2.7 trillion for exploration in just one year. At its peak of exploration in the last decade, just one company, Royal Dutch Shell, spent Rs 9,621 crore for exploration. The Indian exploration budget leaves no room to believe the declining domestic oil output will get reversed. 

Questions on India’s energy security are back after a lull of more than a year. The petroleum ministry estimates it has just about 9 years of oil in the Indian wells currently in operation. In March this year, it told Parliament the amount of oil it expects to draw up from all the wells is 1967.33 metric million tonnes (MMT). India currently consumes about 214 MMT per year. 

If money is short for exploration, then would policy liberalisation help? In the past few years, India has literally squeezed every well and every policy option to wring more oil drops for the economy. A 2013 report of a committee headed by Vijay Kelkar, “Roadmap for Enhancing Domestic Oil & Gas Production and Sustainable Reduction in Import Dependency by 2030”, has again been picked up from the shelves. Of the 52 recommendations from the Kelkar committee, the government has implemented 47, including a national data depository on prospective wells, reforms in production sharing contracts, an open acreage licensing policy and so on. Yet production of crude by all oil companies, state and private sector, in India has gone down by close to 11 per cent from 36 MMT in FY17. 

As of January 2021, India imports 85 per cent of the oil it needs. The percentage was 69 in FY15. This could look like the most unhappy result for our energy security but there is an anecdote to counter it. In 2012, the British Lord of Admiralty, Winston Churchill, found he needed oil to run his navy ships and the island did not have a drop of it. He turned to Persia (Iran) to secure his supplies, setting off a global race for oil. 

There is no reason to replicate that disastrous history, yet there is also no doubt India has to secure a stable source of supply from abroad for at least more than a decade to maintain its energy security for oil and even for coal, until renewable energy supply comes into play with sizeable volumes. There is no other option.

As the world’s third-largest consumer of oil in the world, India cannot be a forager in the high seas, buying from whoever offers a barrel at a dollar cheaper than at the next port.

Last week, for the first time, India sourced its first-ever oil cargo from a new oil producer, Guyana in Latin America. The buyer was HPCL-Mittal Energy. Mangalore Refinery and Petrochemicals Ltd, too, has for the first time bought a one-million barrel consignment of Brazilian Tupi crude oil. In February, India imported more oil from the USA and Nigeria than Saudi Arabia and Iran. After being at the top for some time, Saudi Arabia has shifted to fourth position. Still, these can only give faint warning signals to India’s established suppliers, Iraq, Iran and Saudi Arabia, to reduce prices. The scale of leverage deployed is low. 

Yet it is possible to do so. The annual bill for the purchases has averaged $100 billion or about a sixth of the current forex reserves with the Reserve Bank of India (RBI). So money is not a constraint. The constraint is the lack of a stable supplier. It might seem attractive to divert the Rs 6 trillion spent annually for oil imports to source domestic supplies, but there is no time to do it. The economy can’t drop its imports, choke growth in the process and wait for the elusive domestic supply to emerge.  

In natural gas, for instance, India sources more than 50 per cent of its supply from Qatar and is quite happy to let it remain that way. But in oil, there is no happy port for India. In the past three years, ONGC Videsh, ONGC’s overseas arm, acquired three exploration blocks in Namibia, Israel and UAE. Of these, only the UAE block has offered $44 million as dividend. It has surrendered the other two.

Instead of spending small change to prospect for oil in and around India, policies to set up a dedicated supply line from abroad will work better. This will mean making some strong friends and possibly annoying old allies but that is the price of energy security for a big economy.