Indian consortium may still get stake in Iranian Farzad-B gas field
India’s quest for building its energy security may see it continue to pursue investment opportunity in Farzad-B gas field in Iran even though ONGC Videsh Ltd (OVL) has not got the right to develop the block that it discovered over a decade ago. Highly-placed sources in the Oil Ministry said that the Indian consortium, including Indian Oil, Oil India and OVL, which bagged the exploration contract for Farzad-B in 2002, may remain invested in the upstream project as equity partners with other local and international entities even without operatorship rights. The consortium could get 30 per cent stake in the project, which will also allow it to get their share of gas to India at applicable rates decided by Iran. IANS has reported in July last year, that Indian companies would participate in Farzad B project as equity partners even after their claim for developing the field was not accepted by Iranian authorities that decided to give it to a local company last year. In May this year, Iran awarded a $ 1.78 billion contract to give rights of the field to Petropars group. Though the exploration contract signed by the Indian consortium expired in 2009, official sources said that a deal could be negotiated so that India has a presence in the field as equity investors. Farzad-B, which was discovered by OVL in the Farsi block about 10 years ago, had in-place gas reserve of 21.7 trillion cubic feet, of which 12.5 tcf is believed to be recoverable. If India gets a share of this gas, it could reduce its dependence on expensive LNG. Iran has been dilly-dallying over grant of development right of Farzad B for few years now. Things came to a standstill since US sanctions on Iran in 2018 with India also moving slowly on the matter. “There are two issues to Farzad-B project. Iran may have not given development rights to OVL but an Indian consortium continues to have part ownership of the block and would get its share of profit whosoever develops the project,” the source quoted earlier said. OVL-led consortium have invested close to $100 million in the project. India and Iran were initially targeting concluding a deal on Farzad-B field development by November 2016 but later mutually agreed to push the timeline to February 2017. The deadline to wrap up negotiations was later targeted for September 2017. But, the deal got stuck over pricing of gas. Sanctions delayed the process thereafter and despite visits of ministers from both sides, no agreement could be reached. OVL pushed for the deal with a sweetened offer that included investment of close to $11 billion. But that also did not break the ice and the project remained in limbo till February 2020 when Iran made its intent clear of awarding then gas field to a local company. It did so in May when the projects was awarded to Petropars.
India plans refiners’ joint oil deals to cut import bill
India is forming a group that brings together state-run and private refiners to seek better crude import deals, oil secretary Tarun Kapoor said on Tuesday, as the country grapples with soaring oil prices. The world’s third largest oil importer and consumer, India depends on imports for about 85% of its crude and buys most of it from Middle East producers. Initially the group of refiners will meet once in a fortnight and exchange ideas on crude purchases. “The companies can form joint strategies and they can even go for joint negotiations wherever possible,” Kapoor, the top bureaucrat in the petroleum ministry, told Reuters. Indian state refiners already jointly negotiate some crude oil purchases. To date the one effort at a joint negotiation bringing together not only state-run but private refiners resulted in a deal that secured supply of Iranian oil at a deep discount. With local gasoline and gasoil prices rising to a record high amid India’s worst power crisis in years, the nation wants to redouble its efforts to buy wisely. India’s trade deficit in September surged to a record $22.6 billion, its highest in at least 14 years, driven by expensive imports. Kapoor said the Organization of the Petroleum Exporting Countries and its allies, together known as OPEC+, should raise production to bring down global oil prices. “OPEC+ should realise that this is not the right approach, they must step up production. If the demand is going up and you are not increasing production, you are trying to create a gap,” he said. “Due to this, prices are going up and that’s not fair”. OPEC+ producers recently agreed to stick to a plan to increase November output by 400,000 barrels per day (bpd) as it looks to phase out output curbs of 5.8 million bpd over time. Kapoor said rising oil prices would prompt oil consumers to “seriously start thinking of shifting to other forms or curtail their demand for OPEC oil somehow”. “These kind of prices are not sustainable.” India is already reducing the share of OPEC oil in its crude mix as refiners, that have invested billions of dollars in refinery upgrades, are tapping cheaper oil. High oil prices are spurring investment in upstream activities, that could lead to higher production from regions other than the Gulf, Kapoor noted.
How natural gas could thwart or support India’s renewables progress
As India builds more gas-fired power plants and infrastructure to supply natural gas, this investment must not be allowed to crowd out investment in greener technologies such as renewables, green hydrogen and storage capacity, experts tell IndiaSpend. Natural gas, though less polluting than coal, is not as clean as renewables. Experts say over-capacity in the natural gas sector could lead to assets being stranded, but a solution lies in planning in such a way that gas infrastructure can be repurposed for renewables such as green hydrogen — which will make India’s energy systems truly emissions free in the longer term. In the immediate future, the use of natural gas in industries, transport and in homes will enable the move away from highly polluting coal, but it must only be used as a ‘transition fuel’. “India should plan specific policies on natural gas that will make it a bridge leading to a renewables-based economy. Otherwise we are stuck with one more fossil fuel which we will have to battle 10-15 years down the line,” Hemant Mallya, senior programme lead at the Council on Energy, Environment and Water (CEEW), a New Delhi-based think-tank, told IndiaSpend. Natural gas as a ‘transition’ fuel Under the 2015 Paris agreement, India has committed to reducing the greenhouse gas (GHG) emissions intensity of its Gross Domestic Product (GDP) by 33%-35% by 2030 relative to 2005, for which it must quit burning coal that causes global heating. Using natural gas reduces GHG emissions as the combustion of natural gas emits about half as much carbon as coal. In addition, India has also said it will install 450 gigawatts (GW) of renewable energy capacity by 2030, of which 100 GW had been installed as of August 2021. Eventually, India plans to use renewable energy as the predominant fuel source. In 2017, the Indian government announced that it would increase the share of natural gas in its energy mix to 15% by 2030. As of September 2021, natural gas made up 6.5% of India’s energy mix. India is promoting natural gas as a ‘transition fuel’ as it moves towards using renewable energy as the main power source, as other countries in Southeast Asia and Africa are doing. This is because renewable energy production, such as that from wind and solar, is intermittent and dependent on weather conditions. For a completely renewable-energy based economy, India would need capacity to store power but battery storage is currently expensive, said Mallya of CEEW. The demand for natural gas globally is projected to increase by 3.6% by 2021 and by 7% in 2024 compared to pre-Covid19 levels in 2019, according to a July 2021 report by the International Energy Agency (IEA), an intergovernmental organisation working to shape energy policies. The growth in demand is largely because gas can replace other more polluting fuels such as coal and oil in sectors such as electricity generation, industry and transport, the report noted. “Almost half of the increase in global gas demand by 2024 is expected to come from the Asia Pacific region, driven by China and India as well as by emerging markets in South and Southeast Asia,” the IEA report said. In February 2020, the Ministry of Petroleum and Natural Gas released a draft LNG policy to increase India’s capacity to convert natural gas to Liquified Natural Gas (LNG) from the existing 42.5 million tonnes per annum (mtpa) to 70 mtpa by 2030. Earlier, in 2020, the ministry had announced a ‘One Nation One Gas Grid’ programme to expand the country’s LNG infrastructure; more than 15,000 km of gas pipelines, covering 407 districts, is scheduled for completion by 2023 under this programme. Half of India’s natural gas is produced within the country while half is imported from Qatar, Australia and the US, among other countries. India is also trying to diversify sources of natural gas by partnering with countries such as Russia that can supply a stable flow of natural gas, the government said in October 2020. Challenges of transition The role of natural gas in bridging between more polluting fossil fuels and zero-carbon technologies can only be temporary because natural gas is also a CO2 emitting fossil fuel. It should be used only until renewable power supply expands and clean alternatives, like green hydrogen, become commercially viable as fuels. Green hydrogen is produced by splitting water into hydrogen and oxygen using renewable energy. While green hydrogen produced from renewables could eventually replace gas for industrial use, it is at present too expensive for widespread use, we reported in September 2021. But “gas power infrastructure built today will be around for decades, threatening to impede the shift to renewable-based energy, because contracts required for gas investments often involve long-term commitments,” said Purva Jain, an energy analyst at the Institute for Energy Economics and Financial Analysis (IEEFA). For instance, the average lifespan of a gas pipeline is 40 years, which means the infrastructure will last into India’s renewable energy transition. Natural gas also requires considerable investment to develop the infrastructure for its transportation, said Rahul Tongia, senior fellow at the Centre for Social and Economic Progress (CSEP). But, if we can innovate the infrastructure, it can be used for natural gas in the short term and for green hydrogen in the long run, he added. The length of the transition phase also depends on how quickly green power storage options become economical, said Mallya of CEEW. “We do not see large scale storage becoming economical at least in the medium term, say 10 years. Till then gas is required.” Others emphasise the importance of relying less on natural gas. Greg Mutitt, a senior policy advisor at the Canada-based International Institute for Sustainable Development, has called natural gas a ‘wall’ and not a bridge for renewable energy as it competes for the same investments. Given the low cost of renewable power, the urgency of climate action and possibility of methane leaks from gas infrastructure, there is no reason to push another fossil fuel, he wrote in
Explained: High international fuel prices and their impact on India
As the global recovery gains strength, the price of crude oil is nearing its highest level since 2018, while the price of natural gas and coal are hitting record highs amid an intensifying energy shortage. We examine the key causes behind soaring fuel prices and their impact on India Why are fuel prices rising? The price of Brent Crude breached the $85 per barrel mark earlier this week reaching its highest level since 2018 on the back of a sharp increase in global demand as the world economy recovers from the pandemic. Key oil producing countries have kept crude oil supplies on a gradually increasing production schedule despite a sharp increase in global crude oil prices. The price of Brent crude has nearly doubled compared to the price of $42.5 per barrel a year ago. In its latest round of meetings, the OPEC+ group of oil producing countries reaffirmed that they would increase total crude oil supply by only 400,000 barrels per day in November despite a sharp increase in prices. The output of the top oil-producing countries – Saudi Arabia, Russia, Iraq, UAE and Kuwait — would still be about 14 per cent lower than reference levels of production post the increase in November. OPEC+ had agreed to sharp cuts in supply in 2020 in response to Covid-19 global travel restrictions in 2020 but the organisation has been slow to boost production as demand has recovered. India and other oil importing nations have called on OPEC+ to boost oil supply faster, arguing that elevated crude oil prices could undermine the recovery of the global economy. Natural gas deliveries to Asia hit an all-time high of $56.3 per mmbtu (Metric Million British Thermal Unit) for deliveries in November, according to SP Global Platts. Supply side issues in the US including disruptions caused by hurricane Ida and lower than expected natural gas supplies from Russia amid increasing demand in Europe have raised the prospect of natural gas shortages in the winter. International coal prices have also reached all-time highs as China faces a coal shortage that has led to factories across China facing power outages. A faster than expected recovery in global demand has pushed the price of Indonesian coal up from about $60 per tonne in March to about $200 per tonne in October. What is the impact on India? High crude oil prices have contributed to the prices of petrol and diesel regularly setting new record highs across the country in 2021. The price of petrol in the national capital is Rs 105.84 per litre up Rs 4.65 per litre over the last three weeks while the price of diesel is at Rs 94.6 per litre up Rs 5.75 per litre over the same period. India has seen a faster recovery in the consumption of petrol than of diesel after pandemic-related restrictions with petrol consumption up 9 per cent in September compared to the year ago period but diesel consumption remaining 6.5 per cent below 2020 levels. Diesel accounts for about 38 per cent of petroleum product consumption in India and is a key fuel used in industry and agriculture. S&P Global Platts Analytics noted in a report that demand for diesel in India was expected to go up in the next few months with the upcoming festive season set to accelerate the economic recovery and push up diesel consumption. Platts Analytics did however predict that India’s total demand for crude oil would only surpass pre pandemic levels in 2022. High international gas prices have led to an upward revision in the price of domestically produced natural gas. The Petroleum Planning and Analysis Cell (PPAC) set the price of natural gas produced by state owned ONGC and Oil India under the nomination regime to $2.9 per mmbtu up from $1.79 per mmbtu in the previous six month period. The PPAC also increased ceiling price of $6.13 per mmbtu for gas extracted from ultra deep water, and high pressure, high temperature discoveries from $3.62 per mmbtu in the previous six month period. The increase in gas prices has put upward pressure on the price of both Compressed Natural Gas (CNG) used as a transport fuel and Piped Natural Gas (PNG) used as a cooking fuel. The price of CNG was hiked twice by a total of Rs 4.56 per kg this month to Rs 49.8 in the national capital and the price of PNG rose by Rs 4.2 per scm (standard cubic meter) of PNG to Rs 35.11 per SCM. High international prices of coal have added to a coal shortage at India’s thermal power plants by forcing thermal plants using imported coal that could not pass on the higher price of coal to procurers to stop supplying power. Low coal stocks at a number of coal fired thermal power plants have led to power outages in a number of states including Punjab and Rajasthan and have forced states to buy power at well above normal prices on the power exchange.