India talks tough at CERAWeek, pushes for lowering of crude oil price

India has taken an aggressive stand during conversations with oil producing nations and pushed for lowering the price of crude oil. Speaking at the ongoing India Energy Forum by CERAWeek, Petroleum Minister Hardeep Puri on Wednesday said that petrol, diesel, Piped Natural Gas (PNG), and Compressed Natural Gas (CNG) prices have risen to the highest levels ever because of supply regulations maintained by oil producing nations.

“The global economy needs clean, affordable, reliable, sustainable energy to speed up the post pandemic energy,” Puri said.

“Crude oil accounts for nearly 20 per cent of our import bill. Our fuel import bill has jumped from $ 8.8 billion (in quarter ending June 2020) to $ 24 billion in quarter ending June 2021…The impact of these rise prices on all economies, but particularly on large developing countries like India, you could see a surge in inflation which could also increase the cost of producing and transporting goods,” he said.

“If prices do not remain predictable, stable and affordable, that economic recovery could prove to be fragile. If economic activity slows down, so it will affect the producers too,” Puri added.

He noted how global crude oil prices fell to $ 19 a barrel when the lockdowns were imposed in March 2020. Puri described the present the situation as the wakeup call and said that if prices are not brought under control, global economic recovery could be fragile.

Puri also reiterated Prime Minister Narendra Modi’s announcement that India should endeavour to become an energy independent country by 2047, the 100th year of India’s independence. “We will do whatever it takes to increase exploration and production in India,” he said while emphasising how ramping up domestic production is a priority of the country.

He emphasised that Organisation of the Petroleum Exporting Countries and its allied countries (collectively called OPEC+) should factor in the sentiments of the consuming countries.

“I hope our friends in OPEC+ will factor in the sentiment that is being echoed. Whilst we are trying to ensure that economic activity accelerates, the fact is that high (oil) prices undermine it. If economic activity slows down, then demand for oil and gas will also,” Puri said.

Current price ‘just does not work’

At a later session with OPEC secretary general, Mohammad Sanusi Barkindo, Petroleum Secretary, Tarun Kapoor said that the price volatility is not good for both producers and consumers.

“This just does not work. The price of natural gas has shot up. There is a natural gas supply mismatch of just 5 per cent but the price went up by 10 times,” Kapoor said.

Kapoor said that the high prices will make India want to rethink its energy transition plans where natural gas was supposed to act as a bridge fuel from more polluting coal.

“We have to now rethink because we had drawn a path where we plan to shift to renewables and use natural gas as a fuel in the medium term. We have realised from very high gas prices that we cannot rely on it,” he said.

Asking oil producers to step up in the crisis, “OPEC can very easily raise production and gain confidence of consumers. If the sellers don’t come to help then the reliability goes away. The thinking right now is whether we can rely on any imports at all,” Kapoor said.

Kapoor said that in the absence of reliable supplies, India will try to go back to its domestically available sources of energy.

Need longer term contracts with fixed price

Kapoor also said that there is a need for longer term contracts of crude oil with a fixed, or near to fixed price component.

“If 70 per cent of IndianOil’s contracts are on fixed prices, and 30 per cent on floating, then it is manageable, but if the entire basket goes up, then it is not. If we can tie up a large percentage of oil to fixed or close to fixed prices. We need to explore if we can tie up a large percentage of oil to fixed or close to fixed prices,” he said.

Speaking later at the side lines, Kapoor said that these crude oil contracts should be for longer than one year, and also benchmarked to a commodity, or basket of commodities to lower volatility.