Investments in Oil & Gas sector to fetch Energy Security for India

How soon can we see major investment in the domestic, upstream oil and gas sector? Remember, this is in line with Prime Minister Narendra Modi’s “Make in India” initiative, to give domestic manufacturing a major push

Industry analysts predict a major chunk of investment in the domestic oil and gas sector in the next 5 years. In line with Prime Minister Narendra Modi’s ‘Make in India’ initiative.

The initiative will give domestic manufacturing a major push, and all sectors – upstream (oil and gas exploration), midstream (gas pipeline and ship transport) and downstream (refining) – are likely to benefit.

Recently, the Boston Consulting Group came out with a report where it mentioned that the upstream oil and gas sector will see in excess of 1.5 lakh crore investment over the next 5 years, for discovery & exploration of basins across the country – onshore and offshore.

For a complete energy security, India needs a robust grid of natural gas pipeline infrastructure. This infrastructure will ensure an equitable distribution of gas & the sector will see investments in excess of 2.5 lakh crores. Refinery & petrochemicals, too, are likely to see huge investments of about Rs 88,000 cr and Rs 100,000 crore, respectively.

Moreover, to jump-start manufacturing industry, the government will emphasis on local value addition, opening of more service centres in India and providing access to capital at globally competitive rates.

Energy-Security

India presently imports more than 80% of its oil needs, and it doesn’t have adequate storage facility to store oil. Developed countries are constantly increasing their capacity to store oil domestically, to ensure uninterrupted supply in times of distress. China has enough storage to last more than 90 days, and they’re building reserves to store 180 days’ worth of supply. Given the unpredictable political situation in Asia, the Government of India must expedite the process of building storage facilities. In fact, consumer markets have made the most of crashing global crude prices by investing in large-scale storage facilities – both strategic and financial.

Low energy prices are a boon because India is—and will, in the near future, remain—a net energy importer. However, if energy prices start to inch up, as they inevitably do, it’s domestic exploration and production that will give India an edge against higher oil prices.

Flip Side of Global Crude Oil Falling

Over the last few months, the frown on my face has been gradually turning into a smile while getting petrol for my car. Looking at soaring share market prices, it would spread even wider. With the rising values of my shares and savings on account of lower petrol and commodity prices, I thought that the ache din had truly arrived for me.

However, a couple of days back this smile weared off with the news of stock market crashing 900 points on Tuesday – the biggest one-day fall in over five years – making a  huge dent to my meagre wealth.

Whilst this served as a reminder about the vagaries of the stock market, it also prompted me to find out what caused this huge downfall in an otherwise positive looking business environment.

And to my surprise, it is the same petrol that was bringing a huge smile which is causing me pain now.

A powerful storm of market forces is rippling across oil and gas industry’s plummeting oil prices, weakening global oil demand and the rapid growth of renewable energy. In just past few days, oil prices hit a five-year low. This has not only caused massive havoc to the exporting nations, but the economic casualties have spread through to the other economies the world over.

From the outset, economies like India that are dependent on oil and gas exports should be laughing away to banks with the savings on import but that isn’t the case. With the world’s economies increasingly dependent on each other’s success, it’s no longer the case that one country’s economic problem is limited to its own backyard. Greece is a classical case in point of how a country with less than 10% of India’s GDP has suddenly become very important for domestic investors. Greece’s economy might be small but its problems have roiled global markets since 2009.

Ashok Malik aptly put it in his tweet “Frankly I don’t think Greek has had such impact on Indian fortunes since Alexander defeated Porus”

Similarly, falling global crude oil prices has its own flipside and perhaps can cause more harm to the Indian economy than good.

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Countries like Russia and Venezuela have been massively hit by the Crude oil storm. The rouble, for example  crashed owing to falling crude oil prices. Indian markets had to bear the brunt as well even though it  benefits from falling cost of fuel. India imports nearly 80 per cent of its energy needs and falling oil prices not only help the government’s finances, but are also beneficial for consumers.

“Oil is setting off several other dominos across the globe. You had a taste of that when we saw what happened in Russia. The biggest fear is this could probably lead to some sort of a currency crisis which might result in treatment of entire emerging markets as a single basket.

“Clearly, in a world where money can enter and exit markets freely, sharp movements, such as the one seen on Tuesday, are unavoidable”, analysts say.

And if this downward trend continues, it portends even more disaster for Indian economy. Although till now the OPEC has not decreased the production in a bid to squeeze and wear off other Oil export economies like Russia and Nigeria, it won’t be too long before their economies start bearing the brunt. And that’s when the large middle east sovereign funds and investors with large holdings in many Indian corporates will start exiting Indian markets out of financial pressures, leaving our Stock market in a bit of flux.

I hope that the crude oil prices stabilise for the larger good of global economies. It might be worth for met to pay some more for driving my car, but higher cost for running the nation will be too much to pay for.

Talking about Making India Energy Efficient Won’t Work: Acting on it, Will

PM Modi’s Make in India slogan surely looks like a great initiative and provokes a thought process in people to act on it.  However, it sounds more like the roar of a Lion without teeth. By all means agree to what Bhupender Chaubey wrote in his recent article about the current predicament. Whilst Make in India has attracted attention both in India and globally, but the question is whether our government has laid concrete plans to remove bureaucratic and administrative hurdles that have for long held back our industrial prowess? Case in point is the  energy sector, the bedrock of any developed and industrialized nation.  Government does not seem to have given much attention to making India self-reliant in energy resources.

It is a no brainier that to be a superpower that we aspire to be, it is important to be self –reliant in energy or reduce our dependence on imports as much as possible. It would be tough for PM Modi to fulfill his promises if the energy policy is not set right. Even the CAG has made a call to speed up the decisions on oil and gas, giving precedence to the result over the processes. Oil imports on their own account for 30 per cent of all imports with subsidies impacting deficits. The center can’t keep vacillating on this front. Luckily, the global crude oil prices are down right now. But imagine what were to happen if the crisis, which is never ending in the Middle East, was to escalate? The best way to insulate ourselves from any such scenario is to invest in our own capabilities of production and exploration of natural resources.

And not just for industrial growth, energy self-reliance is also important to ensure that the fruits of development are percolated deep down to the most downtrodden and backward. As Bhupinder Chaubey rightly mentions that even the remotest village in Palamu district of Jharkhand should be illuminated with electricity

Oil&Gas

If the Government is expecting investment by the private sector in the high risk oil & gas sector with the existing arcane laws, regulations and processes, it is expecting too much. So, to attract private capital, the government has to lay out proper policies which will ensure a balance of risk and reward. Of course, if a transparent and mutually beneficial partnership thrives between the government and the private players, one could perhaps be looking at a success story. Till yesterday, the reality was that government was only interested in extracting maximum revenue from private players. However, given the risk undertaken by oil companies and the huge investment brought by them, despite the uncertainty of finding oil/gas, government must decide whether it wishes to support the private companies through favorable and consistent policies- more so at the initial stage – or risk losing out in the race for energy security.