Oil, toil and turmoil

The turmoil of war has jerked the entire world back into arranging for energy today, not in a distant emission-free future. India has successfully deflected hypocritical lectures from the West about buying discounted oil from Russia; but the ongoing war of words between the Centre and some state governments over the crushing burden of taxes on petroleum products leaves Indian consumers as helpless as ever.  

The Centre’s high-pitched demand on the states has helped obscure its failure in that during FY 2021-22 India’s domestic oil production fell below 30 million metric tonnes — for the first time since the early 1990s. Oil import dependence has crossed 85 per cent — without anyone recalling that this was the year set for the prime minister’s target of reducing it to 67 per cent.  Imported oil cost us $120 billion —equal to 30 per cent of the total value of all goods exports.

During the long hot summer ahead, electricity to keep us alive will depend not just on coal, but on increasingly costly diesel, refined in India, but from imported crude oil. Our hospitals, schools and other establishments survive because hardworking citizens have invested in diesel gensets for back-up power supply; with capacity reported to be 90,000 MW. (This is equal to all the electricity generated, intermittently, from India’s solar and wind power establishments; in fact, it is close to 25 per cent of India’s total installed power generation capacity.)    

It has been argued, including in this paper, that in view of India’s supposedly unfavourable geology and environmental controversies, further efforts to enhance exploration for oil are wasteful. Instead we can continue generating growth — and paying our way in the world through services, hi-tech, fintech, unicorns and tourism — while solar/wind farms and hydrogen power our future. Try explaining that in once dirt-poor Barmer, now transformed into Rajasthan’s second richest district, because Cairn overrode geological scepticism and bureaucratic indifference: Teams working in desert conditions, drilled 13 wells at great cost, before striking oil in the 14th; and unlocked India’s second largest oilfields. (And Cairn was then punished by our taxmen, now comfortably retired; while you and I are paying up for their debacle).

India’s geological potential remains largely unexplored because of policy hostility and high-handed taxation rather than the lack of expertise. And the preference for foreign sourcing is never a recipe for security in an energy starved nation; or for managing perennial foreign exchange deficiencies. We should take heed of the shifting global priorities to chart a new trajectory.

Just one year ago, the International Energy Agency in Paris declared the developed world’s perspective — that the goal of “Net Zero Emissions by 2050” meant, “no new exploration for new (oil) resources is required”. A chastened IEA in its 2021-26 survey now says: “It is crucial to invest in the upstream sector, even during rapid transitions — in which it would still take years to shift”!

India will shift by 2030-2035, when renewables may provide enough electricity, but we have to manage till then, and not just for fuel. As pharma producers reminded us recently, even the ubiquitous paracetamol is derived from oil. Fertilisers for food, transport, packaging and logistics, managing workplaces and markets, making and setting up solar and wind farms, equipping and training the armed forces protecting our frontiers — all depend on oil.

Sixty per cent of the oil we use comes from the Gulf, historically a volatile region. We have done well to develop good ties with major producers, but political relationships are like the shifting desert sands and no guarantee for energy security. This is a key takeaway from the once unimaginable drama of the rulers of Saudi Arabia and the UAE declining to take phone calls from the US President asking for increased crude output to cool global markets!

While the military conflict in Ukraine grinds on, the West’s worldwide war on Russia (aka sanctions) has distorted global energy trade with soaring prices and supply getting linked to political alignments.  It was a relief for us that Qatar held off requests from the highest levels of the US government to divert LNG shipments from Asia to Europe in February this year. The Biden administration has tried to solve its petrol price crisis by easing sanctions on Iran’s security forces; but it has been stymied by domestic lobbies, and by other affected countries, some of whom have the will to act first and argue later when their vital interests are at stake. China is clearly preparing for supply risk by increasing its strategic reserves and investing $77 billion in a determined attempt to raise domestic oil production.  

India has had an extraordinary run of luck since 2014 when international oil prices crashed and remained relatively low till recently. Hence the political and bureaucratic establishments were able to tax and spend, and persist with policies that led to relentless decline in India’s self-reliance. They refused to budge even as the world’s top oil experts accepted the prime minister’s invitations six times, and proffered advice on the target of reducing import dependence!

  

Next door Sri Lanka, has learnt quickly that inability to buy essential fuel imports can lead to political crisis. For India, energy security, like charity, begins at home. We cannot produce the 4 million barrels of oil per day we now import, or replace it with hydrogen of any hue. But we can mitigate dependence, and enhance our own prosperity, by incentivising increased oil production through lowering taxes and cess, rapid approval of development plans for fields once discovered, and accelerated enhanced oil recovery.  We can still lure in foreign direct investment for exploration by promising oil majors a decade or two of growth but we will need to implement (not just proclaim) policy reform, ring-fenced by legal safeguards against our notorious regulatory legerdemain.

The writer is former foreign secretary of India