Date: 28 February 2015
If 2014 is heralded as the year of “People Power”, then 2015 should be remembered as the year for “Policy Power”. Energy and the Economy are intertwined and interdependent. World energy demand is projected to increase by 40 percent by 2030, adding another United States and another China to demand. Meeting energy demand on this scale will require all forms of energy: coal, oil, gas and alternatives. Radical changes are being seen in energy supply and consumption. In this context, geographies and geologies are changing! China, India and Middle East have emerged as key demand centres, contributing more than 80% of incremental consumption. Similarly, oil and gas supply patterns have shifted – share of North America and Asia Pacific is increasing while supply from Europe and Latin America is declining. Globally new oil and gas production is focused in more remote, challenging and expensive to operate locations. Deep-water, ultra deep-water, tight oil and shale gas are great examples of this. In refining, crude oil processed is changing such that it increases the technological complexity and cost. Given this, India needs to choose its options and align its energy mix wisely. It has options around coal, oil, gas, renewables and nuclear.
"Yes, all options need to be considered and utilized, but where and how to focus is the trillion dollar question?"
Renewables is important to pursue, however it must be noted that it is forecast to occupy just 7-8% share in the energy mix by 2035. In renewables - policy makers can improve efficiency by combining gas with wind or solar as hybrid power generation for uninterrupted supply. The option of Nuclear energy exists but is relatively small given the long gestation period from idea to actual generation and the large capital cost to develop it. In coal we should leapfrog to cleaner technologies like gasification. Oil and gas will have to play a pivotal role in the energy mix for India. It is obvious that energy produced domestically is advantaged in many ways – namely: economic stimulus, energy security, FDI flow, feedstock to make industry competitive, developing and employing latest technologies and building new skills and capabilities. In this context, I see the Indian oil and gas sector as being rich with opportunity and potential takers! Between oil and gas, gas has the potential for finding large domestic reserves, and being far less expensive to import than other fuels. As a cleaner fuel it promotes a better quality of life. Most significantly if promoted around a national gas grid, it can help India leapfrog across many years to become an economic ‘power-house’ as we set up smart cities, industrial and energy corridors, expressways, high speed transportation fuelled by gas in all forms - much like the telecom revolution that vaulted Indians from landlines to high speed mobile telephony and data transmission in just a decade. The need of the hour is to establish a set of integrated gas players who will be the energy providers of the future to meet the Prime Minister’s call for building a gas based economy. A business-as-usual approach will have to be shunned. I believe it is crunch time to bring in investments in exploring for oil and gas in new areas, developing discovered oil and gas reserves, enhancing production from existing fields and building global scale refining, petrochemicals and marketing businesses. Maintaining the status quo will accelerate the slowdown in the sector leading to further imports, reduced competitiveness, and balance of payment woes. We need to support and unshackle our industry to step up and participate in this very capital intensive and risky business. The government needs to act as an enabler, maintain sanctity of contracts, and provide flexibility and space for participants to work at scale and build competitiveness. Luckily, this is an industry which is used to taking large bets and managing such risks without Government support other than the normal freedom to price and market its production. In fact, the government assumes ZERO risk but benefits through taxes, royalty and profit share, in addition to the economic and developmental benefits to the nation. Significant opportunities exist across the oil and gas value chain. Here are some quick wins that hold a wealth of potential:
In the upstream exploration and production, sector focus should be on 4 key areas:
- Enhanced oil recovery– Even a 1% enhancement can add almost 8% to the existing proved reserves of India – about 450 million barrels of additional reserves.
- Deepwater– In addition to exploring new areas, there is immediate opportunity to develop already discovered reserves with investments of $50 billion to almost double India’s gas production by 2019, replacing imported gas worth $150 billion.
- Unconventional resources– shale gas and tight oil are two frontier areas. We need a different mind-set in terms of sharing of mineral rights with land owners, non-discriminatory access to pipeline networks, attracting technology partners and regulatory and decision making clarity.
- Strategic partnerships- The growth of several successful hydrocarbon provinces in countries like Angola, Azerbaijan and Iraq has resulted from strategic partnerships. In India also, there is a large opportunity to create such ‘win-win’ partnerships in Enhanced Oil Recovery, and difficult High Pressure High Temperature and deep water projects.
Our endeavour should be to develop more world scale plants that can compete in all seasons – providing advantaged fuel and feedstock in terms of cost, quality and formulation so that our industries can be the most competitive globally. This will need over $250 billion in investment.
Advantaged feedstock to this industry to support development of smart cities and related industrial, residential, and infrastructure investments.
In Natural Gas Pipelines
Invest in over 32000 km of network by 2030 with design capacity of more than 800 million metric standard cubic meters per day, and a liquid natural gas (LNG) terminal capacity of 80 to 90 million tons per year – all requiring $20-30 billion in investment.
Encourage competition in fuels marketing with terminal and pipeline infrastructure sharing to build capital and operating efficiencies to provide efficiency and choice to the end consumer.
In City Gas Distribution
more than 250 cities across the country could have city gas distribution with 5000 plus compressed natural gas stations to service these cities and the cross country transportation sector. $15-20 billion investment is needed by 2030 to set up an adequate CGD footprint. Research and development, oil services and ancillary businesses and skills will automatically develop at scale, as the industry develops. There exists a concrete example of the deep water industry where multiple global scale service providers and training facilities have been set up on the east coast in support of this activity. The goals and aspirations of all stakeholders have never been so aligned in wanting to literally and figuratively “energize the economy”! The time is ripe for the stakeholders in the Indian energy ecosystem to catalyze and forge these partnerships towards three key imperatives – stimulate the current business, bring disruptive change in the sector and build scale and efficiencies to drive competitiveness. Action needs to be taken now and with urgency, as the value at stake for India here is too big to fritter away.
(The views expressed here are personal)