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How the Middle East can help India balance energy demand with sustainability

Friday, 14 February 2020 | 16:00

On the new motorway south from Delhi to Agra, innumerable brickworks exhale smoke and a whitish haze blankets the fields. Of all major countries, perhaps India best exemplifies the energy trilemma of balancing secure availability, affordability, and environmental acceptability. This opens the way for a fruitful partnership with the Middle East.

India’s energy demand is estimated to grow 50 per cent by 2030. The Narendra Modi administration now claims that 99.9 per cent of households have access to electricity, even if in small quantities and often patchy. Road-building slowed last year but still averaged 27 kilometres every day.

Already the world’s third-biggest oil consumer, India is expected soon to overtake China consistently as the largest contributor to world oil demand growth. The country intends to boost the share of gas in its energy mix to 15 per cent from 6.2 per cent today by 2030, still well below the world average. It is the second-largest global user of coal, though far smaller than China. Wind farms tower over the desert around Jaisalmer, and solar panels adorn roadside petrol stations, contributing to an ambition of 175 gigawatts of renewables, a doubling of current capacity, by 2022.

India has made great strides in assuring availability of energy to its fast-growing economy. For its large low-income population, affordability remains essential. But despite its progress in renewables, it struggles to balance this with environmental sustainability.

Pollution across north India is now worse than in China. India remains heavily dependent on cheap coal for power generation, with air quality also harmed by vehicle tailpipes, road dust, burning agricultural waste, as well as from the use of coal and fuel oil in industries such as cement and brickmaking. China has converted large parts of its heating to gas from coal to clean up its air by government fiat, but such moves are not so easily implemented by New Delhi.

As the chairman of the National Thermal Power Company observes, domestic coal is available at 80 US cents (Dh2.9) per million British thermal units. By contrast, in the middle of a price crash caused by oversupply and exacerbated by the Chinese coronavirus crisis, Reliance Industries recently bought spot liquefied natural gas at $2.80. This was the lowest for many years, but still more than three times the price of coal. Most Indian imports are on long-term contracts linked to oil prices at much higher levels, around $6 or more. Even with some premium for clean power, it will be hard for gas to make much headway against coal for electricity generation unless its price stays low.

India needs this continuous ready supply of energy to sustain its rapid economic growth. While shale oil seems to have led Washington to discount energy security, and Brussels is consumed by decarbonisation, New Delhi is acutely aware of its dependence on the Middle East. In January, it sent warships to accompany its tankers following a spate of attacks on vessels in the Gulf last year.

Purchases of overseas LNG meet a little more than half of gas demand, while much of India’s own output comes from expensive deepwater fields. Problematic north-eastern neighbours – Pakistan, Afghanistan and Iran – hamper land access to the Middle East and Central Asia. Unlike China with access to pipelines from the former Soviet Union, all of India’s oil and gas imports have to come by sea. Its levels of domestic petroleum self-sufficiency, strategic oil storage and overseas energy assets are much lower than that of its giant northern neighbour.

Energy companies in the Middle East are, of course, aware of India’s importance. Both the UAE and Saudi Arabia have strategic partnerships with India. Aramco and Adnoc are working with Indian state companies on a massive refinery and chemical complex in Maharashtra, and Adnoc is working with Adani Group on a renewable-powered “green” petrochemicals plant in Gujarat. The Abu Dhabi state company also has an agreement for strategic oil storage at Mangalore. Conversely, a group of Indian national oil companies led by the largest, ONGC, entered Abu Dhabi’s Lower Zakum concession in February 2018. On the renewables front, Masdar bought about 20 per cent in Hero Future Energies, a Delhi developer of solar and wind projects, in November.

Working in the Indian energy market is not easy. State and local interests, bureaucracy, land acquisition and inadequate infrastructure remain major issues. Privatisation, deregulation and pricing reform have proceeded only haltingly. But the logic of markets and proximity will surely see Indo-Gulf energy trading and investment deepen substantially.

These commercial deals, though strategic and crucial for accessing future energy consumers, still do not really integrate the strategic element. Various Western concepts have sought to recruit India as a counterweight to China, or as part of an “Indo-Pacific” security framework including other states such as Japan, Australia and Singapore. This involves much wider considerations than energy.

But from the GCC perspective, India offers geographic proximity, a capable military, long historic and cultural links, and a giant and fast-growing market. It is geopolitically less polarising than closer co-operation with Beijing and Moscow. And it might be more reliable than complete dependence on the US, given Washington’s professions of “energy dominance” contrasted with India’s strong self-interest in interrupted passage of the Gulf.

There is a natural partnership here, with an interchange of skills, technology and capital, a flow of natural resources towards India, and a security guarantee – likely remaining implicit – the other way. That would help solve the trilemma of affordability, availability and sustainability.
Source: The National

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