Growth requires energy and as the economy grows, India’s energy demand is projected to double to 1,516 mtoe by 2035, from 753.7 mtoe in 2017. India already imports almost 90 per cent of its crude requirements and over 50 per cent of its gas. A series of changes to policy are being mandated to cope with this steady rise in projected demand.
The budget allocations to the oil and gas sector have been cut, which may seem paradoxical. But the policy thrust is to encourage the flow of private capital and expertise. Policy is also being tweaked to encourage a move towards gas (lower emission than crude-derived products) and ethanol blending (India has vast ethanol production capacities). It also aims to push green hydrogen production and injection into gas.
A three-year window has been declared for commissioning green hydrogen projects where the renewable energy used will get open access without central surcharge and zero interstate transmission charges for 25 years. This should halve the cost of green hydrogen production. Experiments are on for blending hydrogen with natural gas–this should help in reaching closer to carbon neutrality.
The Open Acreage Licensing Policy is designed to more than double the area under oil and gas exploration and production by 2025 and double acreage again, to 1 million square km by 2030. Over five rounds of OALP, 105 blocks have been awarded for exploration and a sixth round has been launched. The list of required statutory approvals has been reduced for exploration and a proposal to allow 100 per cent FDI under the automatic route in state-run oil and gas companies has been cleared. This should make the strategic divestment of BPCL easier.
The Petroleum and Natural Gas Regulatory Board is aggressively encouraging the roll-out of gas distribution networks. The policy has also been tweaked to make it easier to become a marketing entity for transportation fuels. The GST on ethanol blending has been cut to achieve the target of raising the ethanol blending petrol mix to 20 per cent.
Asset monetisation is another policy theme. The government plans to monetise over 8,000 km of natural gas pipelines, and expects it to yield Rs 240 billion. It also plans to monetise 3,930 km of petroleum and LNG pipelines for Rs 225 billion. Two hydrogen generation plants owned by Indian Oil Corporation are on the block alongside other assets. Capacity at the Strategic Petroleum Reserve is also being leased out.
While downstream and midstream activity and infrastructure is developed, there is really an urgent need to augment domestic production, which has stagnated over the years. Dependency on energy exports could rise to high levels, leading to trade imbalance as well as extreme vulnerability to supply shocks as have occurred due to the recent sanctions on Russia. Proactive policy changes should boost investments into the upstream sector and help improve the exploitation of hydrocarbon reserves while moving the economy closer to carbon-neutrality. There should be plenty of investment opportunities for the private sector during this decade-long process.