In view of its economic growth, an expanding population, as well as increasing urbanization which has put India on the path to becoming a global economic powerhouse, the country is seeking cooperation with OPEC to secure its long-term energy future.
With a young, dynamic and expanding population, strong services sector, a world-renowned IT sector and a solid manufacturing base, India presents huge potential for a variety of energy resources; oil, gas, coal, hydropower, nuclear and renewables.
India is currently the third-largest oil consumer in the world, and to support this it continues to look to expand both its upstream and downstream sectors. In terms of crude oil, India’s total imports have risen from around 1.5 mb/d in 2000 to close to 4.3 mb/d in 2016; and close to 80 per cent of this came from OPEC Member Countries. In fact, in 2016 India was the fastest growing oil demand nation globally, with an increase of close to 340,000 b/d, or 8.3 per cent.
By 2040, India’s oil demand is anticipated to increase by over 150 per cent, from around 4 mb/d presently to 10.1 mb/d by then. Its total share of global oil demand will rise from four per cent, to over 9 per cent by 2040.
Speaking at the second high-level meeting of the OPEC-India Energy Dialogue, on Monday in Austria, OPEC Secretary General, Mohammad Sanusi Barkindo, said that from the perspective of oil, demand growth will increasingly shift to India.
The OPEC scribe added that with OPEC home to over 80 per cent of the world’s proven crude oil reserves, and with many of its Member Countries well-positioned for exports to India, it is clear that this relationship will expand further.
On his part, India’s Minister of Petroleum and Natural Gas, Dharmendra Pradhan listed the priorities of the Indian government to include: Energy access; energy efficiency; energy sustainability and energy security.
He highlighted the significance of the India-OPEC dialogue as his country imports about 86 per cent of its crude, 70 per cent of natural gas and 95 per cent of cooking gas from the OPEC countries.
On this premise, the Minister noted that “these factors have placed India in a very unique position which makes us an important customer who cannot be neglected. There are similar customers in our part of the world; however, India is the only country where the demand will continue to rise for more than a decade.”
Pradhan revisited the drawn-out issue over crude oil price disparity between the West and Eastern markets and tasked OPEC to treat Asian markets as primary markets as its strategy of incentivising Western markets in the past did not result in retaining those markets.
In his words, “The issue of Asian Premium still continues to exist. Our companies pay billions of dollars on this account. They still don’t understand the rationale of this cross subsidisation of tariffs between West and the East.”
“I am fully aware that OPEC member countries are in the business of selling oil and not subsidising it. However, my purpose of raising this issue again today is to say that don’t subsidise others at our expense. I urge the OPEC and through you also to non-OPEC countries to purposefully consider this,” he added.
The lingering Asian premium came about as a result of the adoption of a “formula pricing system” and “markers” for three regions around 1987. As the formula pricing operated, it led to two developments: There was a timing gap in price changes between the prices for the Asian market and those for the European and American markets; Prices for Asian markets were relatively higher than those for European and American markets.
Going further, Pradhan noted that he had in attendance with him a Group-7 of Indian Refiners which includes seven Chief Executives from public and private sector, who head all 23 refineries in India processing 235 million Metric Tons of crude annually or 4.7 million barrel per day capacity. He extoled their importance as critical stakeholders, as they import four million barrels per day of crude, refine it and market it both in domestic and international markets.
“Today, our annual refining capacity is 235 million MT of which 194 million MT of products are consumed domestically, while the rest is exported. At the same time our energy consumption is expected to double in the next 15 years. We are in fact net exporters of Gasoline, Naptha, Jet fuel and Gas oil. We are in the process of increasing our refining capacity around 310 MMT by 2023. India is fast becoming a refinery hub. We are also investing about $80 billion in Petrochemicals in next 3-5 years.” Pradhan said.