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Opec+ ambitions for India oil market clash with clean energy goals

India's dependence on imported oil has only grown in the past decade to over 85 per cent of its needs

crude oil
S Dinakar
6 min read Last Updated : Nov 21 2023 | 10:38 PM IST
The world’s top petroleum suppliers say that India’s thirst for oil will not be satiated any time soon, even as the country walks a tightrope between promoting clean fuel and consuming oil. In the process, India under Prime Minister Narendra Modi’s government is getting boxed in between its ambitions to be one of the world’s biggest consumers of commodities which fuels growth and reconciling to its status as one of the world’s most polluted nations.

The question that now faces India is how will a humongous need for oil square up against an equally aggressive energy transition programme, or match up to an Aatmanirbharta approach to growth — an impossible task when it comes to producing oil & gas locally.
 
India’s dependence on imported oil has only grown in the past decade to over 85 per cent of its needs; nearly half of its gas and over 60 per cent of LPG, India’s cooking fuel, is imported: And it is precisely this dependence that the Organization for Petroleum Exporting Countries (Opec), Russia, and the US seek to exploit — get New Delhi to replace China as the next big destination for oil and gas. Import dependence climbs to 90 per cent in a decade while LNG imports may surge to 
85 per cent of India’s needs if the country trebles its gas use by 2030, analysts said.
 
It’s a quid pro quo deal because India cannot maintain a 7 per cent annual growth rate — while adding trillions of dollars to its $3.75 trillion GDP — without foreign petroleum. 
 
“India will continue to register growth until the medium term at the very least and may even surpass China by 2027 as the main source of growth in the overall global oil market,” said Sourav Mitra, practice leader & director-consulting, ratings agency Crisil Market Intelligence and Analytics. “Oil demand in India is expected to grow at the fastest pace among the large economies, and one can expect India to become a key market for Opec as projected even with EV competition,’’ he added. Russia accounts for around 40 per cent of India’s crude supplies with most of the rest coming from West Asia.
 
India can never completely substitute China as the demand centre for oil and the latter in 2030 will still be the largest oil market at 19 million barrels per day (bpd), said Fatih Birol, chief of the International Energy Agency, at an event. Despite accounting for 28 per cent of the world’s growth in oil demand in the coming years, amid declining or stagnating oil use in China, India’s overall oil use will be less than half of China’s consumption by 2030.
 
In terms of numbers, the world’s third biggest energy consumer is now consuming 5.5 million bpd, a $250-billion crude market, growing at 3-4 per cent. Imports of all petroleum products in 2022-23 was $185 billion. The IEA (International Energy Agency) has pegged India’s oil use at 8.4 million bpd by 2040; its latest energy transition report expects global oil use to maximise before 2030, but India’s peak comes much later.
 
Demand for oil in India is not expected to peak at least for the next two decades unless we see a rapid transition to electrification across sectors, Mitra said. The need for oil has intensified because of the government’s push to increase the share of energy-intensive manufacturing in the country’s GDP to over 20 per cent from 14 per cent. “As India modernises, its rate of energy demand growth is three times the global average,’’ the IEA said.
 
Indian state refiners expect demand for fuels rising to 6.5 million bpd through 2038, overtaking Chinese demand growth in 2027, and not peaking until 2035-40. Demand for petroleum products is expected to grow by 7.7 per cent in 2023, the fastest pace in the world, Opec said, forecasting the country’s oil consumption to double to as much as 11 million bpd by 2045. Opec reckons that India will add 4 million bpd of road transportation demand based on the assumption that its vehicle fleet will increase nearly fivefold to 240 million, led by internal combustion engines.
 
Transport represents around 42 per cent of the country’s fuel demand, and the bulk of it is diesel. Reliance on diesel, which comprises nearly 40 per cent of India’s oil mix and majorly used in commercial transport, is tough to eliminate because there are few alternatives available to displace the fuel used in heavy trucks. Use of diesel rose by 12 per cent in 2022-23 from a year earlier to 1.76 million bpd.
 
However, the fly in Opec’s wheel is the Modi government’s resolve to rid the country of energy imports. Oil minister Hardeep Puri has said that alternative fuel stations will be established at 22,000 state-run retail outlets by May 2024. New Delhi expects electric two-wheel (E2W) vehicles to account for 70 per cent-80 per cent of new two-wheeler vehicle sales by 2030, and electric four-wheelers to comprise 30 per cent of such sales by the same year – targets which are tough to meet: In 2022, EVs accounted for 29 per cent of new vehicle sales in China, with Europe following at 21 per cent. India averaged 1.5 per cent.
India’s EV progress has slowed because of the shoddy execution of FAME II -- a Rs 10,000 crore subsidy scheme. Top E2W makers were charged with fraud, the subsidy level slashed by 40 per cent-60 per cent in June, and incentives withheld.

Volumes remain impacted by material price hikes taken by manufacturers to help offset the impact of the June reduction of the FAME subsidy, said ratings agency ICRA, a Moody’s affiliate.
 
India imported 4.9 million bpd of crude in the January-October period: Russia accounted for 39 per cent and the top four Gulf nations — Iraq, Saudi Arabia, the UAE, and Kuwait — made up 44 per cent, market intelligence agency Kpler data show.

Gross petroleum imports $184.4 billion in 2022-23, on the back of a 10.6 per cent growth in oil demand to 5.2 million bpd from a year earlier.
 
For now, China is still ahead. Consumption surged to more than 15 million bpd this year from 4.1 million bpd in 1998, thrice that of India. China is also expected to account for half of the 2 million bpd in global demand growth this year, according to UK-market intelligence provider Energy Intelligence estimates. But as the country shifts to a more consumer-oriented economy, its pace of oil consumption is set to decline and the composition of demand to change.


Topics :OPECOPEC oil dealclean energyClean energy development

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