By Saroj Mohanty
India’s energy diplomacy reaped some strategic benefits by hosting the 16th edition of the International Energy Forum (IEF) ministerial conference in New Delhi from April 10-12 in terms of getting some producing countries on board on the issue of an equitable pricing regime for fuels in an asymmetric market and garnering investment in its hydrocarbon sector .
The dividends are significant because of its own domestic imperative and the potential for a oil spike as Western powers like the US weigh up military strikes in response to a suspected poison gas attack in Syria over the weekend. Crude futures soared to highs not seen since December 2014 during the week, underpinned by the geopolitical uncertainty in West Asia.
Oil is the world’s most traded commodity in the world. And it is strategic to India’s own development, especially at a time when growth is picking up after the economy has begun to adjust to policy reforms such as demonetisation and the Good and Services Tax. India's oil demand is set to rise this year as the government aims to boost infrastructure spending and inject liquidity into its banking sector and consumption growth. India’s footprint in global energy markets will increase “materially” till 2040, making it the largest growth market for global energy, BP Plc said in its energy outlook report in February. But rising prices are a challenge for its fiscal system for the government, especially when general elections are due early next year.
Prime Minister Narendra Modi set the ball rolling at the conference, calling for a global consensus on responsible pricing which will serve the mutual interest of both consumers and producers. "Efforts of artificially distort prices are self-defeating as history has shown us. They also cause undue hardship, particularly to those at the bottom of the pyramid in developing and least-developed countries.” This was in clear reference to the “Asian premium” -- a higher price—charged by West Asian producers for shipments to Asian buyers like India and China, as opposed to Europe.
India and China, which together accounted for 17 per cent of world oil consumption last year, have now agreed to leverage the combined size of their shopping baskets. “Responsible pricing is an area for both China and India to work together. Not just as a consumer, but also as energy producers, to safeguard energy security. It is important to provide affordable, reliable and sustainable energy supply to our people.” said Li Fanrong, deputy administrator of China’s National Energy Administration.
The emerging Sino-Indian collaboration is significant in view of the bilateral ties hat has been apparently on the mend in recent weeks with a series of high-level visits. “It’s a big step,” said Petroelum and Natural Gas Minister Dharmendra Pradhan, “If China and India are on the same page regarding Asian premium.” The two neighbours have agreed to enlarge the scope of their multi-dimensional cooperation including technology, procurement and manufacturing.
The Indian prodding seems to have some effect. Iran’s Petroleum Minister Bijan Namdar Zangeneh said that it is important for producers and consumers not to have volatility in the market. “I think we should look at the market not for short-term,”. He agreed that global benchmark Brent oil trading at $70 a barrel were too high and said that $60 a barrel is a “good price” for oil, as the market should avoid volatility. But Indian officials say prices at about $50 a barrel is needed to manage finances better. Iran has also offered to increase a discount on freight prices to Indian state refiners and during talks on the sidelines of the conference settled its differences with India over developing the Farzad B natural gas field in the Islamic republic. Zangeneh said that Indian firms would submit proposals for the field within the next two months.
India also used the opportunity of hosting the ministerial to showcase India’s oil and gas reforms and greater scope for investment in the sector. The prime minister, petroleum minister and external affairs minister highlighted that India is open for investment in its upstream, midstream and downstream hydrocarbon sectors as well as for technological, R&D and academic collaborations.
Saudi Arabian Oil Minister Khalid A. Al-Falih lauded the government’s reforms saying they are “facilitating investment flow” and that Riyadh sees India as “a priority for investment.” Saudi company and the world's largest oil producer Aramco entered signed an agreement to pick up 50% stake in a planned $44-billion refinery-cum-petrochemical project in Maharashtra. Another Saudi company, SABIC, is interested in investing in a cracker project and other facilities.
Kuwait hopes to sell an additional 200,000 barrels per day (bpd) of crude oil to India through the purchase of a stake in an oil refinery in the country, according to Kuwait Petroleum International Chief Executive Nabil Bourisli.
And at another level, New Delhi by hosting the conference sent a message to its immediate neighbours. External Affairs Minister Sushma Swaraj referred to India’s efforts to build fuel infrastructure in the region that should benefit South Asia. "We are well aware that just as energy is a key pillar for our economic growth and development, it is also the same for our neighbours. Our government has been following ‘Neighbourhood First’ in our foreign policy.
"In line with this policy, we strongly believe that our efforts to build our oil and gas infrastructure should also benefit our neighbours and promote economic development and raise their standards of living," she said, delivering the valedictory address at the conference.
(The author is a New Delhi-based analyst. He can be contacted at firstname.lastname@example.org)