Event ReportsPublished on Nov 24, 2009
There is uncertainty in the availability of domestic coal and in this context there is probably a need to rethink India's energy security strategy based on domestic coal
Highlights from the 8th Petro India 2009 conference

< class="heading12boldGeorgia">Key Highlights from the Inaugural Address by Dr Vijay Kelkar

The next two decades are likely to be dominated by fossil fuels even if renewable energy forms make a significant contribution. Volatility in the energy markets dominated by fossil fuels is likely to be less of a problem than the increase in the absolute cost of energy in the future.  Depletion of cheap fossil fuels on the supply side and climate crisis on the demand side are likely to put an upward pressure on energy prices in the future.  The ‘financialization’ of the energy market is likely to add to this upward pressure.

In this light, India’s continued insistence on protecting the consumer from volatility is unsustainable.  Substituting labour for energy will only sustain poverty.  The sooner India integrates with the global markets; the better would be its ability to cope with volatility in energy markets. A larger role for role for natural gas and nuclear energy will definitely improve India’s ability to manage volatility in energy prices.

Price pass-through in the petroleum sector cannot be postponed indefinitely.  The poor need to be protected from price volatility through direct cash transfers.  On the whole the ability for demand to adjust to prices must be preserved.

< class="heading12boldGeorgia">Key Highlights from Plenary Sessions

Energy Market Volatility and India’s Energy Security

Oil prices today are over 10 times what is justified by fundamentals which means that we may be entering another energy price bubble.  Even though a number of perspectives are available on the drivers of such price increases, the exact nature of global energy price cycles is yet to be fully understood.  Given India’s increasing share of imported energy, India cannot expect to remain insulated from the vagaries of global energy markets.

There is uncertainty in the availability of domestic coal and in this context there is probably a need to rethink India’s energy security strategy based on domestic coal. No serious thought has been given to the question of producing coal from deeper mines and that of using in-situ gasification technology to access coal based energy from inaccessible mines.

Though global coal reserves are abundant compared to that of other fossil fuels, it would be unwise for India to bank on the probability investment in these reserves to secure its energy needs.  In the light of growing environmental risks associated with the production and use of coal, investment in coal production capacity is likely to be less attractive compared to other investment options, especially in industrialized countries.

By 2030, India will need 300 GW of coal based capacity. This would require 1.5 GT of coal.  This in turn would translate into an increase of imported coal to 43 million tones per annum.  To absorb these imports, India would have to increase its imported coal handling capacity by over three times.

The optimism over renewable energy sources to displace fossil based energy is not justified given its current growth rates.  Renewable energy must grow at 3 times its current growth levels just to retain its share by 2030.

Upstream Challenges

Oil consumption in India is likely to grow at 7 percent between now and 2030 compared to world growth which likely to be around 3 percent.   Domestic oil & gas resources remain under-explored primarily due to under-investment.  According to the 11th plan India’s investment needs in the petroleum sector across the entire value chain is roughly $55 Billion in the next five years.  However, going by past experience, actual requirements and expenditure could be much higher.  India is said to have one of the most attractive fiscal regimes for upstream investment, but current investments in the sector does not reflect this prospect.

The Role of National Oil Companies 

National Oil Companies (NOCs) control over 80 percent of global oil reserves and their role in supplying oil is critical to the global market in the future. NOCs are political creations which are used for the delivery of public goods apart from producing and supplying oil. Frontier investments by International Oil Companies (IOCs) outside NOCs control means that most of the investment in the world’s oil resources is sub-optimal.  As long as these conditions do not change, oil supply volatility is likely to be grater than that of oil demand volatility.  Oil importing countries need to seek relief primarily from the demand side in terms of efficiency improvements and electrification.

Downstream Sector

The current subsidy regimes which cross-subsidizes the downstream sector with upstream revenue and through the transfer of current liabilities to the future in the form of oil bonds is unsustainable. No other large oil importing country in the world has indulged in permanently subsidizing its oil consumption at the cost of continued fiscal deterioration.

There is a perception among policy makers that a change of a few rupees per litre of petroleum products sold at the retail level to reflect changes in international crude prices will be unacceptable to the general public.  The price differential of oil products such as petrol between some Indian states is as high as Rs.8 per litre on account of the large difference in state level taxes and this has been accepted as a fact of life by all consumers.  Even China which had subsidized its consumers until very recently has shifted to a formula based adjustment changes in international oil prices.

City Gas Distribution

Despite tremendous progress in the development of CGD networks in key cities such as Delhi and Mumbai, a large part of the country is shut out from access to city gas networks partly because of the uncertainty in supply and partly because of the lack of infrastructure. The value creation logic in CGD networks is completely different form that of other segments in the natural gas value chain. The build-up of volumes is quite slow and customer penetration of a reasonable level of 50-60 percent is achieved only after 9-10 years.  Uncertainty in supply, pricing, infrastructure, policy environment add to this inherent delay in the development of the market. The issue that requires immediate attention is the lack of clarity in the authority of the Petroleum & Natural Gas Regulatory Board (PNGRB).

Valedictory Session Key Conclusions

• Threat to India's energy security arises primerily from domestic policy uncertainty.

• India will need $1.3 trillion investments in infrastructure sector by 2030 to meet the emission target under discussion.

• In his Valedictory Address Mr. N. K. Singh posed the following queries- Why PNGRB has not been given the power:

1. to regulate the prices of natural gas?

2. to allocate the gas for regional balancing so as to maximize reach of this clean fuel to the people?

More information will be available soon...


Understanding the Volatility and its Implications
Mr. Sunjoy Joshi, Distinguished Fellow, Observer Research Foundation

Addressing the Potential & Appetite for Investing in India
Mr. A.K. Hazarika, Director (On-Shore), ONGC

Indian Companies: Domestic versus Overseas Opportunities 
Mr G C Saxena, Executive Director & Head (Business Development, ONGC Videsh

Study by Stanford University on Global National Oil Companies 
Dr. Varun Rai, Standford University

Effect of Volatility on Indian Refiners and Downstream Companies
Mr. R.K Singh, Director (Refineries), BPCL

Implications of Product Pricing: Ailing OMCs and Diminishing Investments
Mr. P. Raghavendran, President (Refinery Business), Reliance Industries Ltd.

Accelerating City Gas Distribution Projects - Sharing Experience
Mr Om Narayan, Adviser, GAIL

City Gas Distribution Projects 
Mr. Nitin Zamre, Director (Energy), CRISIL Ltd

Gaseous Fuels for Transport Sector
Dr. R.K. Malhotra, Executive Director (R&D), IOCL

Please credit use of the information to the 8th Petro India Conference organized by ORF, IEF and Petrotech

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