The unprecedented plunge in U.S. West Texas Intermediate (WTI) crude oil price on Monday to $ -40.32 a barrel for May futures is not a true reflection of the state of the global oil industry, which has been badly hit by the “massive demand destruction” caused by the COVID-19 infections, says global energy expert Narendra Taneja.
“This was one episode which happened in Oklahoma in the United States, which is a major hub of oil storage…It should not be taken as the reflection of oil industry in the world,” said Mr. Taneja in a detailed interview with The Hindu.
But the chairman of the New Delhi-based Independent Energy Policy Institute (IEPI), acknowledged that there has been “an unprecedented destruction in demand the world over”. “Today, the demand destruction is almost in the range of 30%, because nearly 4 billion of the world’s population is under lockdown. That has shrivelled energy demand and hit the oil markets badly.”
Mr. Taneja pointed out that in the backdrop of the COVID-19 event, a “super-OPEC” cartel, for the first time, was emerging on the supply side in the form of an enlarged OPEC+, which may not be good news for energy consuming countries such as India and China.
The OPEC+, which earlier had Saudi Arabia and Russia as key partners, has brought together all the energy producing heavyweights from the Organisation of Petroleum Countries (OPEC), Russia and the U.S., on the same platform.
“ President Donald Trump played a big role in expanding OPEC+. With inclusion of the U.S. and some others, a collective decision has been taken to cut supplies by 9.7 million barrels per day next month. But when you see the destruction of demand, it is already 30 million barrels per day, from the pre-COVID 19 global consumption level of 97 million barrel per day. Now, within the enlarged OPEC + they are talking about a production cut of 30 million barrels a day. What is happening is absolutely insane.”
Asked about the impact of OPEC + on India and other leading energy consuming countries, Mr. Taneja said: “A lot of people are celebrating the possible emergence of this super-OPEC. Now, how should big importers like India respond. I don’t think this is good news for us. Earlier we were worried about OPEC, which controlled only 40% of the world’s production, but used oil as an economic weapon. However, if Russia and U.S. permanently join this super-OPEC and institutionalise this arrangement what would stop them from exercising their clout tomorrow to achieve other objectives? This should make India, China, South Korea and Japan — all big importers — extremely anxious and edgy.”
In order to ensure fool-proof energy security, Mr. Taneja proposed that India must build special ties with the Middle East, including Saudi Arabia, other members of the six nation Gulf Cooperation Council(GCC) as well as Iran. He also insisted that New Delhi should establish strategic petroleum reserves for 45 days, to hedge the spiral of geopolitical volatility in the region.
“We in India have a storage capacity of for nine days in the strategic petroleum reserves. The whole idea of strategic reserves is that in the event of a war, there is sufficient oil for your armed forces, running your power plants and essential services. I am personally in favour of building strategic reserves for 45 days. This is because of the strategic challenges that we face. We are very challenged on the Indian Ocean and Central Asia is going to be another point of discomfort in the coming decades. China has come out with its own programmes such as the Belt and Road Initiative (BRI). So India needs to prepare the way the U.S. does, or the way China is doing or Japan does, based on our own specific requirements. We should never ever forget that during the advent of the 1971 war, there were two western oil super majors who were our suppliers, which had stopped giving oil to India.”
“Simultaneously Indian energy shipments have to be protected in the high seas, through robust coordination between a blue water navy and the Indian oil and gas establishment.”
On a geostrategic plain, Mr. Taneja stressed that New Delhi would need to build special ties with the energy rich Middle East.
“When we look at this chessboard called the Middle East, it is important that we take two trajectories — taking into account the Sunni powers and the Shia powers. For us, it is important to remain actively engaged in shaping Middle East in such a way that mutual interests of India and the region are robustly promoted.”
He added: “If you have a stable and prosperous Middle East, it will be the most attractive market for India. Also, it will be the most important market for the Indian expat workforce, products and projects. Secondly, the Middle East can be a very important link between India and Africa. If India builds its way to Africa via Middle East, that is a win-win, because you are going to establish linkages that are going to be very robust and sustainable. It is therefore very important that India maintains good ties with Iran and Saudi Arabia, and wherever possible, try to be a bridge between the two.”
Conversely, for the GCC and Iran, India is a vital demand centre of the region’s oil and gas. “For Saudi Arabia, Kuwait and Iran, it is about securing demand, where India comes in as a super-heavyweight.”
But Mr. Taneja insisted that India-Middle East ties would have to be elevated to the next level through mutual and interlocking energy investments.
“Countries such as Iran, Saudi Arabia and Kuwait need to take a fresh look at India. They have to let Indian companies go and invest in oil and gas exploration and production in their countries, to help us secure supply, which is the core of India’s energy security doctrine.”
Simultaneously, Middle East countries need to invest heavily in India’s energy sector and not view India as a market for oil and gas alone.
“That means Saudi Aramco, Kuwait petroleum, Abu Dhabi National Oil Company should come and invest in India. Saudi Aramco is already talking about $100 billion in India, which is fantastic. But others also need to follow up on that so that India and the Middle East establish a stable equation of strategic inter-dependence. ”
Referring to the Indo-Pacific region and China, Mr. Taneja spotlighted that while securing its energy interests, “India at the same time should work for an Asian energy landscape where there are no conflicts.”
“India needs peace in Asia, and for the next 30 years it should be focusing on only one thing — building its economy, based on absolute pragmatism, and avoiding conflict 360 degrees.”