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India Grapples With the Energy Trilemma

India, the world’s third-largest consumer of energy, continues to deliver robust economic growth in the face of global headwinds. For energy policy aficionados, the South Asian giant provides an interesting case study due to the country’s growing demand from an increasingly urbanized population, high fossil fuel imports and efforts to stimulate domestic production with the help of public and private capital.

Speaking exclusively to S&P Global Commodity Insights, the country’s petroleum and natural gas minister, Hardeep Singh Puri, said India’s position meant it was able to successfully address key challenges. "Today, we are in the situation where India can take reasonable satisfaction of having dealt with the trilemma — which is availability, affordability and sustainability," Puri said.

Energy availability is being tackled in large part by a push for new upstream oil development. In 2022, the Indian government said it would allow companies to sell locally produced crude oil in the domestic market without restrictions. India is also opening new oil and gas exploration areas for development under its Open Acreage Licensing Policy (OALP). 

The reforms are being closely followed by India’s state-owned oil companies and are catching the attention of global energy majors. With an eye to the current OALP bidding round, known as OALP IX, state-run Oil India is in talks with global oil companies to collaborate in the upstream sector, Oil India Chairman and Managing Director Ranjit Rath told S&P Global Commodity Insights. Other state-owned companies are following suit.

Oil India is deciding whether to submit bids as part of OALP IX and is considering where existing production can be grown through further investment, Rath said. The company has set aside about 200 billion rupees ($2.44 billion) for capital expenditure until fiscal year 2025–26. 

Another company looking to scale up investment in the upstream oil sector is Essar Oil & Gas Exploration & Production. The company is accelerating its capital expenditure plans, CEO Pankaj Kalra told S&P Global Commodity Insights, including by investing in its flagship Raniganj production block in eastern India and by considering the newer blocks being offered by the government.

On the affordability front, India has looked to diversify its crude oil imports by increasing its purchases from Russia and other new suppliers. Crude imports from Russia reached a new high of 1.8 million barrels per day in April, according to S&P Global Commodity Insights. These imports have displaced crude from India’s traditional suppliers in the Middle East, with Russian imports rising above combined imports from Saudi Arabia and Iraq for the first time.

This move has kept a lid on prices for domestic consumers, Puri said, and has helped stabilize prices in the world market. "If two well-known producers are sanctioned — Venezuela and Iran — and if energy coming out of the third producer, Russia, is also taken off, consumption cannot come down overnight. That's because you're not going to stop travelling or heating your home,” the minister noted.

The third part of the trilemma, sustainability, may be the hardest to put into practice given India’s expanding energy demand. Local companies such as Oil India, which made its first foray into renewables in 2012 and now has 188.1 MW of capacity in wind and solar, tout their investments in renewable energy.

Puri pointed to India’s progress in adopting natural gas, a fossil fuel that emits less CO2 than oil and coal. India aims to raise the share of gas in its energy mix to 15% from 6% by 2030. Elsewhere, the government intends to ramp up its use of biofuels, ethanol and biogas, and even to become a producer of green hydrogen.

Despite this, India’s energy scene is likely to remain dominated by traditional fossil fuels in the near future, according to Nick Walker, CEO of Cairn Oil & Gas. "While India is likely to see a shift towards a more diversified energy mix, oil and gas will continue to play an important role in meeting the country's energy self-dependency push," Walker said.

Today is Tuesday, May 23, 2023, and here is today’s essential intelligence.

Written by Mark Pengelly.


New German Municipal Wage Deal: Expensive But Still Manageable

Germany's new wage deal for municipal employees is the sector's most expensive wage round ever and significantly increases cost for the country's almost 11,000 municipalities. Combined with weaker revenue growth projected by Germany's new official tax forecast from May 11, it may lead to a small deficit in the country's municipal sector if no effective countermeasures are taken. Yet, S&P Global Ratings believes the agreement is, on average, fiscally manageable.

—Read the report from S&P Global Ratings

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Capital Markets

Asia-Pacific Islamic Banking: Higher Rates Could Present Asset Quality Hurdles

Economic slowdowns and higher rates will weigh on Islamic financing growth in Asia and asset quality. This is similar to challenges facing conventional banks. S&P Global Ratings forecasts Islamic financing will rise by about 8% over the next two years. For Indonesian banks, the pace will likely be faster at 15%-18% in local currency terms, given the low penetration.

—Read the report from S&P Global Ratings

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Global Trade

Algerian Pipeline Gas Flows To Southern Europe Remain Robust In 2023

Algerian exports of natural gas to Southern Europe have remained strong so far in 2023, with Italy continuing to rely on imports from the country and gas flows to Spain recovering from a slight Q1 lull, data from S&P Global Commodity Insights showed. Algeria is now the single biggest gas supplier to Italy after Russian imports were sharply curtailed in 2022, while in Spain pipeline flows from Algeria reached their highest level since February earlier this month.

—Read the article from S&P Global Commodity Insights

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Listen: On The Ground In Paris Connecting The Dots Between Climate And Biodiversity

In this week’s episode of ESG Insider, hosts Lindsey Hall and Esther Whieldon are bringing you coverage of a sustainability summit that S&P Global Sustainable1 hosted in Paris on May 10. They sit down with conference speakers on the sidelines of the event to discuss themes ranging from physical climate risks to net zero to the energy transition to nature. A theme throughout these discussions is the importance of taking a holistic approach to sustainability issues and not treating them in silos.

—Listen and subscribe to ESG Insider, a podcast from S&P Global Sustainable1

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Energy & Commodities

Atlas Of Energy Transition

Navigating a pathway to a low-carbon global economy requires a new plan. The S&P Global Platts Atlas of Energy Transition™, produced in collaboration with S&P Global Market Intelligence, is your map to the sustainable commodity markets of the future.

—Read the report from S&P Global Commodity Insights

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Technology & Media

Improving Real-World Driving Range Is Crucial To Mainstream EV Adoption

A Tesla Model 3 Performance AWD has a maximum battery range of 372 miles. But the same vehicle, under the same conditions, also has a maximum battery range of 310 miles. Which one is right? Both, and neither, when real-world conditions and battery thermal management are taken into account. This lack of consistency in calculating battery range as marketed to the buying public — in this case between the European NEDC and US EPA standards and protocols — can lead to consumer confusion in the journey to mass adoption of electric vehicles. After all, 62 miles is a lot of variances when you are unsure of your next charging location.

—Read the article from S&P Global Mobility

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