Early in 2006 when King Abdullah embarked on his landmark trip to China, India, Malaysia and Pakistan — the emerging economies of Asia — it became evident that a ‘Look East’ policy was being given a definite push by Riyadh. Coincidentally, Saudi Arabia’s ‘Look-East Policy’ is being complemented by India’s ‘Look-West Policy’ — envisaging promotion of trade and investment and the formation of partnerships with energy-rich Saudi Arabia and other Gulf countries.
With the Indian economy making major strides in recent years, energy security demands have become a major objective for New Delhi. An expanding middle class with significant disposable income, a changing consumption pattern and lifestyles with an ever-increasing number of cars on the streets mean more and more fuel is needed to meet transportation and other requirements of modern life.
Associated with galloping industrial requirements to continue fueling the high growth rates, it became almost incumbent upon the South Block to keep a constant eye on the country’s current and future energy needs.
In the present set-up, with most of the energy hungry countries attempting to secure their future energy needs, India could not have remained oblivious any further to the tight global demand-supply balance. The future of 1,200 million Indians was at stake.
And the credit for changing the Indian outlook goes to none other than the former petroleum minister, Mani Shankar Aiyer.
Mani Shankar was instrumental in getting the future Indian energy vision on the map. He is also credited with trying to evolve, in close association with the Saudi Petroleum Minister Ali-Al-Naimi, an Asian energy identity. Hence at the 2nd Asian energy ministers’ round table held in Riyadh early this year, both Naimi and the IEF Secretary-General Ambassador Arne Walther did not miss giving credit where it was due.
It is now apparent that continued economic progress, population growth and the pursuit of improved living standards in the developing world will be the key driver of global energy demand over the next two decades, Exxon Mobil Corporation said, releasing the corporation’s Outlook for Energy: A View to 2030, earlier this month. Energy demand growth in the developing world, which includes countries that are not members of the Organization for Economic Cooperation and Development (OECD), is expected to be two percent per year — four times that of the developed world at 0.5 percent per year, Exxon Mobil report continued to emphasize.
The Indian demand surge has to be seen in this perspective. The country currently imports 70 percent of its crude-oil requirements. By 2010, India is projected to emerge as the fourth largest consumer of energy after the United States, China and Japan and as per the International Energy Agency (IEA), from roughly 2.83 million bpd in 2006, the Indian consumption is bound to touch to 5.5 million barrels/day by then.
The parameters of energy security in India can hence be readily set out. Even if India succeeds in raising its domestic output by half — from nearly 35 million tons per annum at present to, say, 50 million tons — over the next two decades, owing to high growth rates of the Indian economy, its import dependence will only rise to 85 percent and beyond.
This is definitely a cause of concern for Indian planners.
India’s energy problems have been compounded by the recent declaration by Oil and Natural Gas Corporation (ONGC) and the Gujarat State Petroleum Corporation (GSPC) that finds at blocks off the rich east coast are much lower than initially projected.
ONGC cut its projection of the Krishna Godavari (KG) basin find to 2 trillion cubic feet (tcf) from the huge 21tcf disclosed last December. GSPC has also lowered its projection to 1.38tcf from the equally big 20tcf first announced in June 2005.
The latest projections put into question New Delhi’s recent claim that India will be a gas-surplus nation in the near future.
Saudi Arabia is the largest supplier of crude oil to energy-deficient India, supplying almost 26 percent of the annual crude oil imports. Saudi crude exports to India are bound to increase. Naimi has reiterated that, ‘serving’ Asian customers were central to Saudi petroleum policy as Asia had become the No. 1 customer of the Kingdom.
During the visit of King Abdullah to New Delhi, India and Saudi Arabia announced a strategic energy partnership based on “complementarity and interdependence” ensuring increased crude supplies and formation of joint ventures in upstream and downstream projects.
The ‘Delhi Declaration,’ signed by King Abdullah and Prime Minister Manmohan Singh saw both agreeing to ensure a “reliable, stable and increased” volume of crude oil supplies through “evergreen” long-term contracts.
During deliberations Saudi Arabia consented to increase investments in India in oil refining, marketing and creation of storage facilities. The two sides also agreed then to discuss setting up of ventures for gas-based fertilizer plants in Saudi Arabia.
Keeping in view Indian sensitivity about security of supplies, India and Saudi Aramco have also been discussing joint ventures in setting up commercial crude oil storage in India.
India’s current total crude oil storage capacity is sufficient to meet the country’s oil requirement for 19 days only.
It has been reported in the past that Saudi Aramco was considering partnering in a 5 million MT crude storage capacity projects in Vishakapatnam and Mangalore.
Saudi Arabia has also expressed keen interest in the refining sector in India. There have been talks in the past of Saudi Aramco joining in as equity partner in the 7.5 mtpa Kakinada refinery project in Andhra Pradesh in India. The Saudis have also been exploring the possibility of investing in four other Indian oil refineries at Bhatinda, Bina, Paradip (12 mtpa) and Barmer. Talks seem to be moving ahead in some of the above projects.
Reports indicate Saudi Aramco could pick up a sizable equity stake in Indian Oil Corporation’s (IOC) proposed $8 billion Paradip refinery and petrochemical complex in the eastern coast of the country. IOC’s director (business development), N.K. Nayyar was in Riyadh last year to discuss with Saudi Aramco the scope of possible investments in IOC’s Paradip refinery project.
India is also keen for Saudi participation in gas exploration projects in the upstream sector. Among the important joint ventures concluded in the energy sector during the visit of King Abdullah, mention may be made of the MOU between Engineers India Limited and Manar Energy Company for engineering consultancy and oil refinery and the MOU between GSPC and FAS Saudi Holding Co., Riyadh, in the field of upstream oil and natural gas.
India’s ONGC is reportedly also in talks with SABIC about investing in a 2.5 billion euros complex in Dahej, Gujarat. “ONGC is in talks with SABIC and a few other firms for technical, financial and operational collaboration for the Dahej project,” a source was recently reported as saying. SABIC has previously said it was in discussions with a potential Indian partner to build a naphtha cracker on India’s west coast.
The possibility of the involvement of ONGC, IOC and GAIL in exploration of huge Saudi oil reserves has also been discussed. During a recent meeting with the board members of Lukoil, GAIL’s chief had expressed interest in picking up stake in the concession Lukoil has in the block A of the Empty Quarter.
The Indian state-owned gas transmission and marketing company GAIL (India) Ltd is reportedly also planning a joint venture petrochemical plant and LNG terminal in Saudi Arabia in partnership with another Indian company and the Russian oil firm Lukoil.
The possible Indian partner in the project could be private sector major Reliance Industries Ltd (RIL). The proposed petrochemical plant in Saudi Arabia will be set up based on the gas finds in block A.
Based on an historical perspective, mutual fraternity and solid economic justifications, oiled by the growing synergy in the energy sector, Indo-Saudi relations have entered a new phase and are in for exciting times in the years to come.
