PM Modi sticks to energy targets despite demand slump

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October 27, 2020 7:30 AM

Says renewable capacity will reach 175 GW by 2022, domestic airline fleet will double by 2024

Stating that India saw transformational reforms in the energy sector in the last five years, Modi highlighted recent changes in the oil and gas exploration and production regime as well as gas marketing.

Prime Minister Narendra Modi on Monday reaffirmed the government’s commitment to achieving India’s energy-security goals, including the raising of the country’s renewable energy capacity to 175 giga watt (GW) by 2022 from under 95 GW now and oil refining capacity to 400 million tonne (mt) from 250 mt at present. Amid dire predictions of a contraction in global energy demand over the next few years (it dropped by a third in Q1), Modi stressed that India would emerge as a “leading energy consumer”, with a likely near doubling of its consumption over the long-term.

Addressing the CEOs of leading global oil & gas companies who participated in India Energy Forum organized by the Niti Aayog and ministry of petroleum and natural gas via video conferencing, the prime minister said the country’s domestic airline fleet would expand from 600 now to 1,200 by 2024. Access to energy must be affordable and reliable, he said, adding that energy security was at the core of the country’s policy planning.

Around 45 CEOs/senior management executives of major oil and gas companies attended the event, including those of Abu Dhabi National Oil Company, Rosneft, BP, Total, Vedanta Resources and RIL. This was the fifth such event organised by the Niti Aayog and the government.

Stating that India saw transformational reforms in the energy sector in the last five years, Modi highlighted recent changes in the oil and gas exploration and production regime as well as gas marketing.

India’s efforts to attract foreign energy giants into hydrocarbon exploration and production haven’t been quite fruitful. Having committed $2.3-billion investment, energy firms such as Cairn Oil & Gas spent $75 million (about `550 crore) in oil and gas hunt in the first two years of India’s maiden open acreage licensing policy (OALP), PTI reported recently, quoting the Directorate General of Hydrocarbons (DGH). In a bid to expedite oil and gas exploration and raise domestic production, the government had in 2018 launched the first bid round under the OALP that allowed explorers to carve out desired areas for exploration and offered liberal terms. Five rounds have been concluded so far, with winners of the fifth bid round announced last Thursday.

In the first four rounds, a $2.3-billion investment was committed by firms such as Vedanta Group firm Cairn Oil & Gas, state-owned ONGC and Oil India in 99 blocks awarded for exploration and production of oil and gas, according to the latest data put out by the DGH.

As per the February 2019 Cabinet decision, contractors bidding for blocks in category 2 and 3 basins — which are unexplored and without much geo-scientific data — will only pay royalty and statutory levies and do not have to share any revenue unless windfall gains are made. To attract more players, the government had also decided to provide concession in royalty if production commences within specific timelines. Indigenous crude oil production caters to about only 15% of the country’s requirements and the 32.2 MT of crude oil produced in the country in FY20 was 6% lower than the production from the year-ago period.

Earlier this month, the Cabinet approved standard bidding norms to discover the prices of gas from new and upcoming fields, in a move aimed at augmenting production from these fields and reduce imports of the natural resource. These fields had already been given considerable pricing and marketing freedom via separate fiats over the last four years. However, there existed a lack of uniformity of bidding guidelines.

The new bidding mechanism will impact the prices of fuel from the Krishna Godavari (KG) Basin in the east coast, where companies like Reliance Industries, BP and state-run ONGC are developing new gas production projects. Currently, the new fields (those other than the nominated fields) make up for less than fifth of the natural gas produced in the country, but these are expected to increase their share significantly in the coming years. The policy aims to provide standard procedure for sale of natural gas in a transparent and competitive manner to discover market price by issuing guidelines for sale by contractor through e-bidding.

Of course, the gas pricing formula for nominated fields — which currently produces most of the domestic gas — will continue to be enforced.

Domestic natural gas production caters about half of the domestic requirements at present. The domestic output fell 2.8% year-on-year to 31,168 million standard cubic metre/day in FY20, reversing the growth trend recorded since FY18.

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