July 2018: EDITOR Devangshu Datta

EDITOR Devangshu Datta

India is the world’s fastest growing large economy and energy demand is growing in tandem with fast macroeconomic growth. India is already the world’s largest importer of crude, and the fourth largest importer of natural gas. Policies therefore must be geared to meeting higher consumption needs in the future while paying heed to minimising emissions.

The recent past has seen the sector facing many serious challenges. International prices are volatile and could trend higher, given the uncertainties of geopolitics. This puts pressure on the trade balance and will lead to higher current account deficits in this fiscal year, apart from fuelling inflation. At the same time, domestic production of crude and gas has stagnated for several years.

Policy changes have been designed to encourage upstream activity in exploration and production. The new OALP, the reworked HELP, and ancillary initiatives like the Discovered Small Fields Policy, marketing and pricing freedom for CBM, inclusion of shale under petroleum, the Auto Fuel Vision and Policy, 2025, the National Policy on Biofuels, 2018, and the creation of the National Seismic Programme and the National Data Repository are all enablers for higher production.

In the midstream segment, new refining capacity will be required and that is indeed being created. Surplus refining capacity is useful since India is a major exporter of petro products. Enormous amounts of transportation infrastructure is also required, ranging from new LNG terminals as well as pipelines to deliver fuel to the hinterland. The pipeline network is quite inadequate and capacity creation is proceeding at a slower-than-desirable rate, given the usual issues of land acquisition and statutory clearances. LNG terminal capacity is, however, growing reasonably quickly. City gas distribution networks are also being bid out and the response appears to be positive.

In fact, this is a critical month in several respects. Apart from CGD, successful bids under the OALP are also due to be announced by end July. The new OALP framework provides a revenue sharing model for oil and gas blocks along with more marketing and pricing freedom. Nine companies have participated in this process, making bids either singly, or in concert, for 55 blocks.

However, although the initial responses are encouraging, the sector is long gestation in nature and it will take time to translate bids into higher production. Import dependencies will remain and may, in fact, increase in the medium term.

Adequate storage and transportation infrastructure is urgently required so as to reach consumers. Apart from this, there needs to be more focus on investments in unconventional sources such as shale and CBM, as well as faster monetisation of discoveries. Policymakers must think for the long term in order to create a favourable regulatory environment.