Arab-India Energy Forum: New Delhi’s reliance on oil from West Asia unlikely to wane; here’s why

On Wednesday, the first edition of the two-day Arab-India Energy Forum (AIEF) concluded after discussing a range of issues on boosting two-way energy cooperation and intra-regional power trading.

As per the Ministry of External Affairs, the event was held in the virtual format under the co-chairship of India and the Kingdom of Morocco and the inaugural session of the forum was addressed by RK Singh, Minister of State (Independent Charge) for Power, Aziz Rabbah, Minister of Energy and Mines of Morocco, and Kamal Hasan Ali, Assistant Secretary-General for Economic Affairs of the League of Arab States (LAS).

“The subsequent plenary sessions explored the potential and challenges of cooperation in the fields of energy transition, intra-regional power trading, hydrocarbons and nuclear power generation,” the MEA said in a statement. The panellists were drawn from a wide range of public and private sector institutions from India and the LAS member states as also key regional organisations such as the Organisation of Arab Petroleum Exporting Countries (OAPEC) and the Arab Atomic Energy Agency (AAEA).

“The forum witnessed exchange of knowledge, expertise and best practices in the fields of energy efficiency programmes for different economic sectors, accelerated development of new and renewable energy, fostering regional power-sharing arrangements, enhanced oil recovery, tight gas extraction and safe nuclear power generation etc.,” the MEA said. “There was also a discussion on respective national regulatory policies governing these sectors, investment opportunities as well as R&D and training collaboration possibilities,” it added.

While the inaugural edition of the forum passed off successfully, the underlying facts in question remain the same. That India has a voracious appetite for oil.

Indeed, New Delhi is the world’s third largest consumer of black gold (after the big boys United States and China).

As per Al Jazeera, an International Energy Agency (IEA) report stated that India’s demand for oil is expected to continue growing and reach about 6 million barrels per day by 2024, up from 4.4 million barrels per day in 2017, representing an annual growth of 3.9 percent. That’s far higher than the global average of 1.2 percent, the IEA said.

As per the report, India could become the largest consumer of oil by the mid-2020s.

A thirst that only intensifies as India’s oil and gas production continues to fall.

As this Indian Express piece noted, India’s crude oil production fell by 5.2 percent and natural gas production by 8.1 percent in FY21. While producers cited COVID-19-related delays as the key reasons behind this outcome, the piece made note of the fact that India’s crude oil and natural gas production have been consistently declining since 2011-2012.

The piece noted that as per experts, most of India’s crude oil and natural gas production comes from ageing wells that have become less productive over time. An industry source speaking to the newspaper on condition of anonymity said “there was no more easy oil and gas” available in India and that producers would have to invest in extracting oil and gas using technologically intensive means from more difficult fields such as ultra deepwater fields.

Which in turn increases India’s reliance on imports.

As per the report, the share of imports as a proportion of overall crude oil consumption in India rose from 81.8 percent in FY2012 to 87.6 percent in FY2020.

Which is not a good position to be in as it leaves India vulnerable in case the supply of imported oil is disrupted.

“India’s strong dependence on oil imports is expected to increase,” the IEA report said. With 65 percent of imports coming from West Asia through the Strait of Hormuz, “the Indian economy is and will become even more exposed to risks of supply disruptions, geopolitical uncertainties and the volatility of oil prices,” the report said.

“Geopolitical volatility is embedded in oil,” said Anirban Mukherjee, a partner at the Boston Consulting Group told Al Jazeera. “We need to be prepared to deal with that because that is very difficult to predict and out of India’s control.”

But what of renewables you ask?

As per DTE, India’s renewable energy capacity addition in 2020 declined by more than 50 percent since 2019, primarily due to construction delays brought on by COVID-19, according to International Energy Agency’s (IEA) Renewable Energy Market Update. The challenges of integrating renewable energy into the grid also acted as an impediment, the report added.

The report, however, did offer a glimmer of good news, noting that India “may set new records for renewable energy capacity expansion in 2021 and 2022, since the delayed projects from previous competitive auctions have been commissioned”.

While India has reiterated its commitment to green hydrogen when the Union finance minister Nirmala Sitharaman announced the plan to launch the Hydrogen Energy Mission in her budget speech (earmarking Rs 1,500 crore for the mission and the Indian Renewable Energy Development Agency) those details are still awaited.

As Debasish Mishra, Leader Energy Resources and Industrial Products at Deloitte India told Hindustan Times: “India has been diversifying its energy mix away from oil with alternate sources such as renewables, biofuel, gas, hydrogen etc contributing more to the energy mix in the long term, but their contribution in the short term remains insignificant.”

In short?

Don’t expect New Delhi’s reliance on oil from West Asia to wane anytime soon.

With inputs from PTI

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