India says rectifying oil demand and supply imbalance are key to recovery

Strong points

Soaring prices a wake-up call to invest more in the oil and gas sector

Rising oil import bill worsens the country’s finances

Biofuels, hydrogen and gas will play a key role in India’s energy future

India said on October 20 that soaring oil prices could potentially create obstacles to a post-pandemic economic recovery, and urged major global producers to take action to potentially rectify current supply imbalances and demand.

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Speaking at the Indian Energy Forum hosted by CERAWeek, India’s Petroleum Minister Hardeep Singh Puri said the sharp rise in prices was a wake-up call that investment must systematically flow into the petroleum sector. and gas.

“I am sure our friends at OPEC + will heed the sentiment expressed in forums like this. We are trying to secure economic activity, but if high prices undermine that economic activity, economic activity will slow down and the Demand for oil and gas will also increase. go down, ”Puri told the Indian Energy Forum.

Saudi Energy Minister Prince Abdulaziz bin Salman told the forum that OPEC and its allies see no crude oil shortages in the market, rejecting calls from consuming countries to increase supplies to contain the surge. prices.

Dated Brent prices have more than doubled in the past year, with S&P Global Platts pricing the benchmark at $ 85.03 / bbl on October 19.

OPEC + members are currently signing a deal to increase crude production by 400,000 bpd every month, but key customers, including India, the United States and Japan, have complained that the The alliance is still withholding too much supply.

“Today’s energy markets are characterized by imbalances. We must accept that the world needs a reliable supply of oil and gas until we can build new energy infrastructure,” Puri said.

India’s oil demand in 2021 is expected to increase by 295,000 b / d to 4.9 million b / d, which would still be well below 2019 levels. The country is expected to reach a demand level of pre-pandemic oil in 2022, according to S&P Global Platts Analytics.

Adding to the pain

Puri said India’s crude import bill, which accounts for about 20% of the country’s overall import bill, rose to $ 24 billion in the quarter ended in June, from $ 8.8 billion. dollars in the same quarter a year earlier.

“These facts speak for themselves. Due to this extreme volatility, the prices of fuels, such as gasoline and diesel, have reached some of the highest levels in the country,” he added.

Domestic gasoline consumption had rebounded sharply to a higher level even at pre-pandemic levels, while diesel was also experiencing robust growth, Puri said.

“If prices do not remain predictable, stable and affordable, the economic recovery could prove fragile.

Platts Analytics expects India’s aggregate oil demand to pick up after the monsoon season, with the coming holiday season and an improving economy supporting consumption and pushing up demand growth in Q4 of 575,000 b / d quarter on quarter at 5.3 million b / d.

He said one of the government’s priorities would be to find ways to boost domestic oil and gas production. “We are taking steps to increase the area being explored.”

Focus on energy transition

India’s per capita energy consumption was about a third of the world average, creating the need to invest in building a wide variety of fuels to meet the expected growth in consumption, said Puri.

“India is focused on transitioning to cleaner energy and developing a gas-based economy, while meeting the target of 450 GW of renewable energy by 2030. There will be high dependency with respect to domestic resources, such as biofuels, and will move towards energy products, such as green hydrogen, ”Puri said.

In June, New Delhi advanced its goal of achieving 20% ​​ethanol blending with gasoline through 2025 compared to the previous target year of 2030.

India’s policy of more than tripling the rate of ethanol blending into gasoline in less than five years appears to be a step in the right direction, but for many market experts and market leaders industry, it looks like an overshoot. ambitious journey.

“Biofuels will provide opportunities that would be a win-win situation for all of our partners. We are reasonably confident that we will achieve the goal,” Puri said.

In addition, the government would step up efforts to move closer to Prime Minister Narendra Modi’s vision of becoming a gas-based economy, in which the country would aim to increase the share of gas in the overall energy mix to 15%. by 2030 from the current level of 6%.

An estimated investment of $ 60 billion had been planned in the development of gas infrastructure, which includes pipelines, town gas distribution terminals and LNG regasification, Puri said.

“Accelerating the gas initiative would also mean initiatives to strengthen our town gas distribution network in order to expand the use of cooking fuels, as well as initiatives such as LNG trucking,” he added. .

Steve R. Hansen