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CERAWeek: Indian Oil Corp. to foray into renewables, petrochemicals: chairman

04 March 2021 Bernadette Lee

Indian Oil Corporation (IOC) is making strategic moves into petrochemicals, natural gas and different forms of renewable energy as it tries to respond to the impact of the COVID-19 pandemic and the short- and long-term uncertainty in global oil markets, said Chairman Shrikant Madhav (S.M) Vaidya.

During a panel on the future of energy and its implications for the oil and natural gas market at the CERAWeek by IHS Markit conference on March 1, Vaidya said India's low per capita consumption of petrochemicals at present - at about one-third of the global average - was a strong impetus to focus on the sector, especially given the high level of imports.

Currently, Indian refineries convert a small percentage of the crude they process - about 5% to 6% - into petrochemicals, but IOC intends to increase that figure to 15% in the next five to eight years, he said.

India's oil market began to see a recovery in the aftermath of the pandemic in September 2020, especially when it came to refined products. Demand for oil is expected to be strong this year, backed by strong fundamentals including high economic growth, urbanization, industrialization, and efforts to raise the standard of living of Indian people, Vaidya told the virtual audience.

"These are defining India's leading role in global oil demand … I think this quick recovery is a testament to the dynamism that is inherent in India's oil market," he said.

Potential to develop all types of energy

India has the potential to develop all types of energy, Vaidya said.

IOC is making forays into biofuels given the increasingly vital role they play for the country, he said.

"It makes a lot of sense to go into biofuels because it affects the overall, total economy of India. It creates a rural environment, it creates opportunities for waste management, plus their uses are co-dependent," he said.

Hydrogen is another area of focus for IOC, which has done a great deal of hydrogen research and product development, according to Vaidya. It has developed a product known as "XCNG," a form of hydrogen compressed natural gas (HCNG), and trials with some transportation corporations are now underway in New Delhi, the capital of India.

Prospects for gas in India

Noting the volatility in the LNG market, which saw prices drop to $2 per million Btu (MMBtu) last year but spike to $30/MMBtu in February 2021, Carlos Pascual, senior vice president, global energy at IHS Markit and moderator of the panel discussion, asked Vaidya what the prospects are gas and its use in the country.

India's commitment to reducing greenhouse gas emissions makes the foray into gas a logical move as part of its overall energy transition strategy, Vaidya said. The country has already begun investing heavily in the infrastructure supporting the gas sector.

"By and large, the infrastructure is coming. We expect the gas [use] to go up, but yes, the volatility in the market is something that is concerning us all, but at this point in time we are quite bullish ... Biogas is also being promoted in a big way in the rural part of the country. So, gas is going to be the major primary fuel in the years to come," he said.

There are plans to raise gas' share of the Indian energy mix to 15% by 2030, according to Vaidya.

Energy transition strategy for oil and gas companies

In response to a Pascual question about the energy transition strategy that oil and gas companies should take and the implications on the transition, Jeff Currie, global head of commodities research at Goldman Sachs, said there will be a shift away from long-cycle projects involving big, deep offshore platforms to fast-cycle, short-life projects as demand for oil declines in the present environment.

Oil and gas companies diversifying into renewables and other aspects would need to consider a very different business model, Currie said.

"I think focus on what [oil and gas companies] can do, and do it well, but do it with a horizon that is far more manageable, and is realistic, given the type of timeframe we are talking about with the clock now ticking on energy transition. I think this is an exciting time. It's going to provide a lot of different types of opportunities. It's just focusing on the type of opportunities that exist given the parameters we are dealing with," he said.

Currie also said the industry's investment decisions would benefit from consistent public policy.

"This is a super cycle based on policy. The policy has to be implemented. Right now, strangely, the Chinese and the Americans are the ones lacking … Today, they are needing us, hoping they can actually continue the persistent strategy of trying to make this happen," he said.

India's increasing demand for energy

While acknowledging the uncertainty of the future and that posed by policies, one thing remains certain, and that is India's increasing demand for energy, Vaidya said. Demand for fossil fuels in the form of oil will remain, while gas will come on in a big way.

"We only hope that the pricing of the oil will be responsible for both producers and consumers. That way we will be able to do justice to the vast majority of the people who are demanding more and more energy," he said.

"India is taking all steps to ensure that gas becomes the single largest form of energy that is going to increase. Similarly, solar and wind energy is also coming in a very big way, so the road to transition for a country like India is obvious, with all forms of energy and renewables leading the way. That will be the way that India will follow to its final goal of net zero carbon emissions," he said.



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