Interview: India's maiden carbon-neutral crude purchase opens door for more

India's maiden purchase of carbon-neutral crude by Reliance Industries is a strong signal from the biggest private refiner of working toward its goal to become a net carbon zero company by 2035, a move that will also open up the doors for more such inflows, said Ravinder Kumar Malhotra, director general of the Federation of Indian Petroleum Industry.

While India's appetite for oil won't be slowing anytime soon and peak demand is nowhere near, refiners will be accelerating efforts in coming years in finding ways to ensure they play their part in supporting New Delhi's goal to reduce the country's carbon footprint, he added.

"The purchase of the first carbon-neutral crude by Reliance signals their intentions clearly. They want to move towards their target as fast as possible. While many companies and countries across the globe are talking about a 2050 target, Reliance has given itself a target of 2035," Malhotra told S&P Global Platts in an interview.

In January, Oxy Low Carbon Ventures, a subsidiary of Occidental Petroleum, said it had delivered two million barrels of carbon-neutral oil to Reliance Industries.

The US company said it was the energy industry's first major petroleum shipment in which greenhouse gas, or GHG, emissions associated with the entire crude lifecycle, from wellhead to combustion, were offset.

Oxy said this is a first step toward the "development of a net-zero oil" or "climate-differentiated crude oil," which will be produced through the capture and sequestration of atmospheric CO2 via industrial-scale direct air capture facilities and geological sequestration.

The Sea Pearl VLCC delivered two million barrels of crude to Reliance's 1.45 million b/d refining complex in Jamnagar, according to cFlow, Platts trade-flow software.

The oil was produced in the US Permian Basin by Occidental. The US company said Australian investment bank Macquarie Group had arranged and structured the bundled offset supply deal.

Just the beginning

Carbon-neutral cargoes of oil imply the purchase of carbon offsets to cover the life cycle emissions of the fuel.

"This will open up the window for more such cargoes flows not only to Reliance but even to other private and state refiners. Although no other Indian refiner has officially announced a net zero target yet, companies like Indian Oil Corp are also working towards the goal of having a smaller carbon footprint," Malhotra said.

While Reliance has pledged to remain a user of crude oil and natural gas, it has said it was committed to embracing new technologies to convert its CO into useful products and chemicals. The company also has proprietary technology to convert transportation fuels to valuable petrochemical and material building blocks. And at the same time, it has said it would work toward replacing transportation fuels with clean electricity and hydrogen.

Industry officials are of the view that the latest step by Reliance in buying carbon-neutral crude could serve as a wake-up call for others importers in the country, which ships in about 80% of its crude oil requirements from overseas.

Bernstein said in a research note that energy transition was now a core part of Reliance's energy strategy. The company is targeting investments across CCUS, hydrogen, wind, solar, fuel cells and battery to achieve net zero by 2035.

"But as far as carbon-neutral crude is concerned, the key challenge will be how much of this crude can be available in the future," Malhotra said. "There won't be very large quantities that would be available so soon."

Platts began publishing daily assessments reflecting the CORSIA-eligible carbon credit market, called Platts CEC, from Jan. 4, 2021.

Dark clouds clearing

Malhotra said that the outlook for oil and overall energy consumption had improved in the country as GDP growth is expected to bounce back to double-digit levels in 2021 and 2022. New Delhi aims to pump in billions of dollars to revive growth that has been hit following the COVID-19 pandemic.

In addition, some strong incentives in this financial year's budget to revive economic growth would also support energy demand.

"I am hopeful that India will witness robust growth in crude oil demand this year. Our imports from the United States are growing. Even if supplies from Iran or Venezuela do not return to the market that fast -- that will depend on geopolitics of course -- we have tied up with enough suppliers to get the incremental supplies," Malhotra said.

US crude imports by India in 2020 of 12.69 million mt were up nearly 29% from a year earlier, helping the country move up to fifth position from sixth in 2019, customs data showed.

S&P Global Platts Analytics expects India's oil demand in 2021 to recover to the level of 2019, with growth of 470,000 b/d in the year, after declining 470,000 b/d in 2020.

The International Energy Agency said in a Feb. 9 report that India is set to witness the biggest increase in energy demand in the world over the next 20 years, with the potential for oil consumption rising as high as 4 million b/d at 8.7 million b/d by 2040.

But a much stronger push for electrification, efficiency and fuel switching could limit oil demand growth to less than 1 million b/d over the same period, the report added.