Economic Highlights
New Delhi, 25 July 2022
India’s Energy
Security
RUSSIAN DEMAND
CHALLENGING
By Shivaji Sarkar
The unstable world
energy market, volatile prices, uneven supplies may have repercussions on
India’s energy security. The first hit is India’s natural gas company, GAIL’s
liquefied natural gas (LNG) deal, followed by the Russian demand for payment in
UAE dirhams converted in dollar terms.
The GAIL’s troubles
are traced to the German energy regulator taking over Gazprom Germania, which
operates gas to storage and supplies to industries. The move followed Gazprom
moving out of the subsidiary so that it could continue business without
attracting sanctions. It has led to the default in delivery of five cargos as
per a 20-year-deal agreed in 2012 for 2.5 million tonne LNG a year.
This has become a
problem for GAIL, which meets 50 per cent of the nation’s LNG needs. It is
scouting for alternative fuel. But it faces the problem of Russia stopping
supplies to Gazprom Marketing & Trading that owned the future gas contracts
for supplying to Gazprom Germania and other subsidiaries. It used to
supply from Yamal LNG facility. After Russia’s stoppage of supplies, Gazprom
GM&T initially managed supplies from its floating international
portfolio. As prices rose to $40 a unit and supplies to Europe
became lucrative, it diverted supplies leaving GAIL in the lurch.
In fact, the prices
are so high that Gazprom Germania is said to have margins after paying damages
under the take-or-pay clause. The GAIL has option to take legal recourse but it
is cumbersome, may take years and would not address the problems of the Indian
consumers.
The GAIL has long-term LNG supply contracts from the US to
Australia, supplementing domestic gas supplies, though it may cost a bit more
in the prevailing circumstances. Prior to the Russian war against Ukraine, the
US LNG used to cost one-third of the price of gas available on the spot or
current market.
GAIL
has a 5.8 million tonne per annum LNG contract with the US suppliers. These are
all linked to the US gas market, where the current rate is $10 per million
British thermal unit. In comparison, the spot price of LNG in Asia is between
$37 and $40per million British thermal unit.
The
GAIL and the Petroleum Ministry are scouting the markets for ensuring the
supply. The Asian LNG prices are rising with intense demand from Japan, Korea
and India. Trading
activity in the Asia LNG market rose as traders and end-users dipped back into
the spot market to secure cargoes amid increasing global supply uncertainty as
the Gazprom reduction of gas flow into Europe spooked an already fractured
market.
The
world energy markets are seeing too many oddities. India’s domestic exports
though have seen curtailment, but of late with Russian crude being supplied to
the private refiners it is being exported again. The cap through an export tax
clamped on July 1 for ensuring at least 50 per cent of the private refiners’
production has been removed. The duty, imposed following fuel shortage in a
number of States, has been waived on petrol, and cut by a third on diesel and
brought down the windfall tax by 27 per cent.
The
tax has been reduced from Rs 6 to Rs 4 on diesel and done away on petrol. The
duty has been waived refined products and shipped from SEZs. This will give a
big boost to mainly two private refiners Nyara and Reliance. A major benefit
will be to the latter as its refining is based in an SEZ in Jamnagar. The duty
reduction is also said to benefit ONGC and Oil India and Vedanata.
Of
late, according to tenders by Indian Oil and Bharat Petroleum, diesel imports
are expected to rise to its highest since February 202 at over 48,000 barrels
per day. India’s increased imports are telling on Asian fuel supply as planned
petroleum supplies from China have been decreasing.
India
is the world’s third-largest oil consumer at about 5 million barrels a day. It
is growing at 3-4 per cent a year and the demand is likely to go up to 7
million barrels a day in a decade. The Petroleum Planning and Analysis Cell
(PPAC), India’s oil import dependence was 85 per cent in 2019-20, marginally
declined to 84.4 per cent in 2020-21 and again has risen to 85.6 per cent in
2021-22 and in April 2022 it rose to 86.6 per cent. This year’s imports are to
surge beyond the 212.2 million tonnes of crude last year.
The
new exploration licences announces are a good move but it may take a decade to
start new production. The aim is to reduce imports to 50 per cent, too
ambitious, by 2030. Apart from long gestation the capital requirement is
extremely high. India despite odds
remains dependent on Russian oil. India's crude oil imports from Russia
have jumped over 50 times since April and now make up for 10 per cent of all
crude bought from overseas. Russian oil made up for just 0.2 per cent of all
oil imported by India prior to the Ukraine war.
The country is facing
some petrol and diesel shortage as fuel pumps have reportedly gone dry in
several States including Uttarakhand, Rajasthan, Andhra Pradesh, Madhya
Pradesh, some parts of eastern and north-eastern region.
There have been long
queues around fuel pumps in several parts of the country in the past few days
as people rush to fill the fuel tanks of their vehicles. Several petrol
pumps in and around Srinagar and Rajasthan have also faced shortages. The US-led
sanctions on the energy tie-up with Russia have been contested by a number of
gas-starved NATO members, including Germany, Europe’s largest economy. Even
Japan, the world’s third largest economy after the US and China, says it will
maintain oil and gas projects in Russia citing the country’s energy security
concerns as the reason.
Germany and Japan are
the most important US strategic partners in Europe and Asia, respectively. Only
a week ago, Japan’s Economy, Trade and Industry Minister Koichi Hagiuda made an
emphatic statement that his country “does not intend to withdraw” from oil and
LNG development projects in Russia as they make a choice between energy
security and tightening sanctions on Russia for the war in Ukraine. A neutral
India has to trudge through a difficult phase to maintain supplies from Russia
and the West as well as keep the domestic prices low. ---INFA
(Copyright, India News
& Feature Alliance)
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