Daily Update: India Grapples With the Energy Trilemma

Today is?Tuesday, May 23, 2023, and here’s your?curated selection of essential intelligence on financial markets and the global economy?from?S&P Global. Subscribe?to be notified of each new?Daily?Update.?

India, the world’s third-largest consumer of energy, continues to deliver robust economic growth in the face of global headwinds. For energy policy aficionados, the South Asian giant provides an interesting case study due to the country’s growing demand from an increasingly urbanized population, high fossil fuel imports and efforts to stimulate domestic production with the help of public and private capital.

Speaking exclusively to S&P Global Commodity Insights, the country’s petroleum and natural gas minister, Hardeep Singh Puri, said India’s position meant it was able to successfully address key challenges. "Today, we are in the situation where India can take reasonable satisfaction of having dealt with the trilemma — which is availability, affordability and sustainability," Puri said.

Energy availability is being tackled in large part by a push for new upstream oil development. In 2022, the Indian government said it would allow companies to sell locally produced crude oil in the domestic market without restrictions. India is also opening new oil and gas exploration areas for development under its Open Acreage Licensing Policy (OALP).

The reforms are being closely followed by India’s state-owned oil companies and are catching the attention of global energy majors. With an eye to the current OALP bidding round, known as OALP IX, state-run Oil India is in talks with global oil companies to collaborate in the upstream sector, Oil India Chairman and Managing Director Ranjit Rath told S&P Global Commodity Insights. Other state-owned companies are following suit.

Oil India is deciding whether to submit bids as part of OALP IX and is considering where existing production can be grown through further investment, Rath said. The company has set aside about 200 billion rupees ($2.44 billion) for capital expenditure until fiscal year 2025–26.

Another company looking to scale up investment in the upstream oil sector is Essar Oil & Gas Exploration & Production. The company is accelerating its capital expenditure plans, CEO Pankaj Kalra told S&P Global Commodity Insights, including by investing in its flagship Raniganj production block in eastern India and by considering the newer blocks being offered by the government.

On the affordability front, India has looked to diversify its crude oil imports by increasing its purchases from Russia and other new suppliers. Crude imports from Russia reached a new high of 1.8 million barrels per day in April, according to S&P Global Commodity Insights. These imports have displaced crude from India’s traditional suppliers in the Middle East, with Russian imports rising above combined imports from Saudi Arabia and Iraq for the first time.

This move has kept a lid on prices for domestic consumers, Puri said, and has helped stabilize prices in the world market. "If two well-known producers are sanctioned — Venezuela and Iran — and if energy coming out of the third producer, Russia, is also taken off, consumption cannot come down overnight. That's because you're not going to stop travelling or heating your home,” the minister noted.

The third part of the trilemma, sustainability, may be the hardest to put into practice given India’s expanding energy demand. Local companies such as Oil India, which made its first foray into renewables in 2012 and now has 188.1 MW of capacity in wind and solar, tout their investments in renewable energy.

Puri pointed to India’s progress in adopting natural gas, a fossil fuel that emits less CO2 than oil and coal. India aims to raise the share of gas in its energy mix to 15% from 6% by 2030. Elsewhere, the government intends to ramp up its use of biofuels, ethanol and biogas, and even to become a producer of green hydrogen.

Despite this, India’s energy scene is likely to remain dominated by traditional fossil fuels in the near future, according to Nick Walker, CEO of Cairn Oil & Gas. "While India is likely to see a shift towards a more diversified energy mix, oil and gas will continue to play an important role in meeting the country's energy self-dependency push," Walker said.

Today is?Tuesday, May 23, 2023, and here is today’s essential intelligence.

Written by Mark Pengelly.

Economy

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—Read the report from?S&P Global Ratings

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—Read the report from?S&P Global Ratings

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Global Trade

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—Read the article from?S&P Global Commodity Insights

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Sustainability

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—Listen and subscribe to ESG Insider, a podcast from?S&P Global Sustainable1

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Technology & Media

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—Read the article from?S&P Global Mobility

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