issue of Oil Market Stability

 The theme of this session is very relevant. The issue of Oil Market Stability has recently become a household name in global energy discussions.

After three years of relative stability of oil prices averaging around US$ 100 per barrel, oil prices declined sharply. There are various explanations given for the fall in oil price. Some see this as a result of sudden increase in global supply of oil due to US shale revolution; some attribute geo-political reasons to this and some argue that this was inevitable since oil prices were artificially high in the past several years.

However, there is no denying the fact that the World Energy map has changed and World energy mix has also changed. New prominent supply sources have emerged in various continents in the map whereas major demand centres and buyers are all concentrated in Asia. Similarly, there have been attempts by all the buyers to go for a better mix in the energy basket by including gas, coal, renewables etc.

I must confess that the recent fall in oil prices has come as a timely relief for Indian economy and consumers. This has resulted in lower levels of inflation and we stand to benefit from higher disposable income which results in higher consumption, decrease in the cost of production of final goods particularly for energy intensive industries and an improved external trade balance.

Today, India is the fourth largest petroleum consumer in the world inspite of having very low consumption per capita. According to the International Energy AgencyÕs World Energy Outlook 2014, IndiaÕs oil demand growth between 2013 & 2040 would be the highest in the worldÑwith a CAGR of 3.5 %. Just to give an example of the magnitude of this growth, IndiaÕs projected growth rate is almost double the next highest growth rate. Even during the last decade, our oil growth was 2 times higher than the world average. Most of this huge consumption is imported. For the Financial Year 2014-15, petroleum imports as % of India's gross imports were 30.3%. In India, hydrocarbons is likely to remain the most important source of energy for decades to come despite consuming other forms of energy like Coal / renewable energy etc. However, I must mention that we have set a target to generate 1,75,000 Megawatt for renewable energy by 2022. This would comprise 1,00,000 MW of solar power, 60,000 MW of wind power, 10,000 MW of energy from biomass and 5,000 MW from small hydroelectric projects. Currently, India's clean energy capacity is 33,000 MW.

There is a new Government in India led by HonÕble Prime Minister Shri Narendra Modi who has been elected with a mandate to pursue pro-growth, pro-development, pro-poor agenda. The Prime Minister has 15 years of experience of running an oil and gas economy since he was Chief Minister of a oil and gas rich province of India. One of the main commitment of this Government is to provide affordable and reliable energy to all segments of the economy and society including the most common man of India.

We understand that energy is the most important catalyst for achieving sustained growth. In the modern world, access to energy should be a fundamental right of each human being. This is particularly true for a rapidly developing economy like India where aspirations of a growing middle-class combine with the urgency to provide basic services to the large mass of poor. We are committed to provide energy, in a time bound manner, to a large proportion of our population who still does not have access to energy.

Secure energy supply is a vital ingredient in the process of developing the economics of the developing nations of the world. Security of supply must, in turn, be matched by security of demand.

The mission of the Organization of the Petroleum Exporting Countries (OPEC) is to coordinate and unify the petroleum policies of its Member Countries and ensure the stabilization of oil markets in order to secure an efficient, economic and regular supply of petroleum to consumers. In its commitment to ensure sufficient supply to meet consumerÕs needs, OPEC generally takes lead in international market supply decisions and co-operation with non-OPEC producers.

OPEC & India share a very long and special relationship. About 85% of our crude import and 94% of our  natural gas import comes from OPEC countries. In return, India provides timely payments and duly honours both short-term and long-term contracts. However, I will fail my duty if I do not reflect upon the sentiment of people of India regarding OPEC. I am sharing this impression  so that OPEC can address them for  the better relationship with India as well as other consumer nations in Asia :

(a) There is a strong feeling that Asian counties like India should receive Asian dividend rather than paying Asian Premium while making bulk purchase of crude. I will not hesitate to say that Asian Premium was historically never justified and more so not justifiable in the changed market scenario where Asian countries are the major buyers. Any measure that erodes the advantage of geography for Asian countries and promotes a policy of subsidising oil traffic to distant destinations is not, and cannot be, in the interests of sustainable development. This calls for ungent rectification.  I will urge upon the OPEC members to understand this genuine concern.

(b) There is also a need of revisiting policies related to demand of the letter of credit from regular and bulk buyers and need to consider extending the credit time for crude import.

(c) OPEC members need to factor in the reality that countries like India have developed most cost effective yet modern and complex refining capacity. Average Nelson Complexity factor of Indian Public Sector refineries is 10 and of Private refinery is about 14 which are higher that European average of 6.5 & US average of 9.5. There is big strength of India in this sector. Hence, it is in everyoneÕs interest to refine crude in India in the most cost effective manner. If we receive crude at a fair price without paying Asian Premium, our gross refining margins will improve and it will result in competitively priced petroleum products.

(d) Consumption of petroleum products in India is price sensitive as there is a genuine issue of affordability for a sizable population in India. Hence, while deciding the pricing aspect of crude oil, it should be factored in that demand of crude for domestic consumption in India  will negatively respond to price rise of crude.

(e) Our government believes in the policy of maintaining proper balance between creation of wealth and providing welfare to the people. We believe that oil prices should be  at reasonable levels that are acceptable to both producers and consumers. Prices must be high enough to ensure a fair return for producers and other investors in the sector, as well as to attract sufficient investment in future production capacity. But, if prices are too high, they will drive people away from oil to other fuels.

The new Government in India believes in integrated approach to energy security. While our crude purchase is going to grow subtantially, we want to graduate from a traditional buyer-seller relationship to a long-term energy partnership. Indian Public Sector Companies alone have overseas presence in across 24 countries  on E & P activities with investment of over USD$30 billion. Our private sector companies also have presence in all continents of the World. Indian public and private companies are aggressive to participate in E&P bids anywhere across the globe. As I have earlier mentioned, we are second to none in refining capacity and technology. Indian companies - both Public and Private Ð have been leaders in providing various services in the global cutting edge technology spread across all streams of hydrocarbon industry. All these firms are already implementing high-value projects like building platforms, sub-sea system, floating system, oil & gas terminals, pipeline construction etc in various parts of the world and also can offer most of the services at a much cost-effective manner with high end solution.

Similarly, India wants foreign investment and participation in Indian hydrocarbon sector. We are bringing in transparent and investor friendly regime. Government has also identified hydrocarbon sector as one of the 25 priority areas for promotion of manufacturing under the ÒMake in IndiaÓ campaign. I am inviting all the countries to come forward to invest in investment friendly environment in India in all streams of oil and gas sector.  We are also developing Strategic Petroleum Reserve, new LNG terminals, refining and petro-chemical complexes  where foreign investment or partnership will be most welcome. We are committed to reforms and other bold measures for ease of doing business for domestic as well as foreign entrepreneur in all sectors. India is presently ranked among the worldÕs fastest growing economies and it will remain so for years to come.

According to the International Energy Agency estimates, India will need investments worth nearly US$600 billion during the years 2011Ð2030, across various segments of its hydrocarbon chain, to increase its energy supply and improve the infrastructure to enable this. This provides ample opportunities for companies across the hydrocarbon value chain.

I see these four areas (i) Sourcing more crude in fair terms user-friendly policies (ii) investment from and in India in E & P activities (iii) investment from and in India in Downstream activities and (iv)           Service contracts to Indian companies -  as a comprehensive & integrated package for developing the international energy partnership.

Coming to the present context, there is a need for greater dialogue and cooperation between Buyer-Seller nations to ensure sustainable development. Global partnership between Buyer & Seller nations would ensure stability, security & sustainability through mutual inter-dependence