Singapore — India on Feb. 4 urged the world's top oil producers to plan production cuts in a way that is more predictable, which would help to plan crude imports in a more organized manner and avoid the pain of volatile prices as it could dampen the fragile recovery process.
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While addressing the S&P Global Platts South Asia Commodities Virtual Forum, India's petroleum and steel minister Dharmendra Pradhan said stable energy markets will be crucial for both economic and demand recovery, and cooperation among consumers and producers is crucial to make that happen.
"While we do not favor too low prices, we also do not support high prices, which deny energy access to millions in India. Efforts at artificially distorting prices will have a dampening effect on the fragile global economic recovery that is underway," Pradhan said in his keynote address.
"It is our expectation that key energy partners who are also major producers would be mindful of consumption-led recovery of India and create more predictability in production cuts, which would help us to plan and contribute towards creating more stable energy markets," he added.
The comments from Pradhan comes after Saudi Arabia in early January made a surprise announcement of an extra 1 million b/d production cut, as well as plans to hold February and March crude production to 8.119 million b/d, well below its OPEC+ quota of 9.119 million b/d, to help bring down oil inventories bloated because of the pandemic.
And on Feb. 3, Iraq's State Oil Marketing Organization said the country produced 3.807 million b/d of crude in January, including from the semi-autonomous Kurdistan region, as it took criticism from an OPEC+ monitoring committee for its lax quota compliance. The January figure puts Iraq comfortably below its OPEC+ production quota of 3.857 million b/d, which is effective through March.
Crude oil futures on Feb. 3 settled near one-year highs on the back of falling US inventories and improved demand outlooks. NYMEX March WTI settled 93 cents higher at $55.69/b, and ICE April Brent climbed $1 to $58.46/b.
India is significantly dependent on the Middle East for hydrocarbon supplies. In fiscal year 2019-20 (April-March), India's hydrocarbon trade with the region was worth $62 billion, which was about 36% of the country's total hydrocarbons trade, Pradhan said.
Crude, LNG trade with US
However, India has made major inroads to other markets and have diversified its supply sources, Pradhan said, and added that in a short span, US had already emerged among the top ten sources of crude oil for India, and also a major source of LNG.
"Going forward, I see enormous potential for our collaboration with the US on the LNG front as we seek to move towards a large gas-based economy," he said.
In addition, Indian public sector companies have also made about $15 billion of investments in Russia, including in the Far East and East Siberia in acquiring stakes in oil and gas assets. "This has added a new dimension to our energy relations," Pradhan added.
To diversify its crude sources, Indian Oil Corp. signed a term contract last year for importing Russian Urals grade crude oil. "This is yet another concrete action to diversify our crude sources, and to reduce our vulnerability to the developments in the Strait of Hormuz," he added.
From a domestic energy security perspective, India would aim to pump in billions of dollars of investments into exploration, boosting gas output as well as expanding refining capacity, Pradhan added.
"India's oil demand is expected to double and gas demand would triple by 2040. Therefore, we are also expanding our refining capacity from the current 250 million mt/year to 450 million mt/year. This will help India maintain its self-sufficiency in supply of petroleum products," he added.
Demand revival, fuel mix
Pradhan said India was now witnessing robust revival of economic activity. "Peak demand of power touched an all-time high of 185.82 GW a day in January this year — yet another indicator of our economic recovery moving in the fast lane," he said.
Consumption of petroleum products had recovered to almost the pre-COVID-19 levels of December 2019. While LPG and gasoline sales registered robust positive growth of 7% and 9%, respectively, in December 2020, diesel volumes were moving toward pre-COVID-19 levels.
"However, as with the rest of the world, aviation fuel will take a little longer to recover due to restrictions on foreign travel even though our domestic air travel has picked up momentum," Pradhan said.
Pradhan added that India's growing energy appetite would have to be met through a healthy mix of all commercially-viable energy sources. While oil and gas would continue to play a crucial role and meet the existing demand, the incremental energy demand would be met by renewables, biofuels and other sources.
"Gas will function as a significant transition fuel for us," he said.
"I am happy to share that an estimated investment of $66 billion is lined up in developing gas infrastructure, which includes pipelines, city gas distribution and LNG regasification terminals," he added.
There is also an increased push to adopt hydrogen in the fuel mix. Last year, India launched a hydrogen-enriched compressed natural gas, or H-CNG, plant and dispensing station in New Delhi and also rolled out the first set of buses using H-CNG, the minister said.
"The announcement of the Green Hydrogen mission in this budget is an important pathway for our energy transition. Given India's huge solar potential, we can harness green hydrogen and effectively utilize it in refineries, steel plants and in the transportation sector," he added.