Indian Oil and Steel Minister: Rosneft is a very reliable partner, it is pleasing to work with Gazprom”
Dharmendra Pradhan discusses fair oil prices and shares prospects for Indian-Russian cooperation in the fuel and energy sector
Vedomosti
By Vitaly Petleva, Arthur Toporkov
04.09.2019
India is one of the largest emerging markets in the world. For several years now, the country's GDP has been growing and not slowing down, despite the aggravation of the geopolitical situation in the world and the trade conflicts of the USA and China.
Every year, the country consumes nearly 240 million tons of oil with its own production 6 times less, and produces less than half of the required 58 billion cubic meters of gas. India imports the difference, including from Russia. But the situation will soon change, the Minister for Petroleum and Steel of India Dharmendra Pradhan told Vedomosti. According to him, the country is intending to substantially revise the energy basket and is already stimulating its own gas production. The Minister believes that India’s volatile economy needs reasonable hydrocarbon prices. Pradhan also explained why he considers Russia to be a key partner, despite the modest share of Russian hydrocarbons in the energy balance of India.
- You arrived in Moscow on August 29, a week before the official visit of the Prime Minister of India, Narendra Modi, to Russia. With whom and on what issues are you communicating?
- This year, Indian Prime Minister Narendra Modi was invited to the Eastern Economic Forum. Our delegation arrived in Moscow a week before to discuss the possibility of expanding commercial cooperation on both sides. Personally, I am responsible for cooperation in the oil and gas sector, [immediately] met with Minister of Energy Alexander Novak. For two days, negotiations were held with [Deputy Prime Minister, Plenipotentiary of the President of Russia in the Far Eastern Federal District] Yuri Trutnev and Novak. In addition, our delegation’s representatives of the metallurgical and oil and gas industries of India discussed the possibility of investing in the development of the Russian Far East with the Director General of the Far Eastern Investment and Exports Agency Leonid Petukhov. Discussions were held with both business and government representatives.
Yuri Trutnev, who oversees the Indian side for the Russian government, recently came to India, and it was a good meeting. After it, there was a visit of a high-ranking business delegation to Moscow, led by our Minister of Trade and Industry Piyush Goyal, who visited Vladivostok also.
I believe that Russia's initiative to develop the Far East and create an economic forum in Vladivostok is wonderful.
Russia is one of our oldest partners in the field of energy and is one of the most important foreign destinations for investment. We invested $ 15 billion in oil and gas projects in Russia. We started importing liquefied natural gas (LNG) from Russia, we purchase it from Gazprom, we also intend to purchase small quantities of coking coal from Russian companies.
Now we are looking at where it is possible to purchase affordable raw materials - be it energy or something else. I believe that Russia is the right place to find affordable raw materials.
Over the past two years, Russian investment in the Indian market has grown significantly. For example, Rosneft , as part of a consortium, has invested and owns refining capacities of 20 million tons of oil per year in India. And the partners of this consortium are planning to increase processing further.
I am sure that, despite the difficult geopolitical situation, as well as the uncertainty of world markets, India is a new fast-growing market for investors.
Russia is a manufacturing country, India is a major consumer. They complement each other. These are special features that we have today. I believe that the forum in Vladivostok will be a turning point for new and old allies, a turning point in our economic cooperation, especially in the development of the Far East.
“Oil prices must be reasonable”
- You assumed the post of Minister of Oil and Gas in 2014, which means that you have set the price of oil at more than $ 100 per barrel. What is your opinion on current oil prices?
- As the largest energy consumer, India is very sensitive to fuel costs: we import 83% of oil. High oil prices, as well as their volatility, are a challenge for India.
I believe that oil prices should be reasonable. We, as a responsible buyer, can say that low prices are equally bad for producers and consumers. High prices too. The price should be profitable for the manufacturer and be available to the buyer - this is a natural economic balance. Even though today the geopolitical situation in the world presents us with new and new challenges, the price of oil has stabilized - this is a guarantee for the development of the global economy.
- So are you satisfied with current prices?
- This is not about satisfaction. I repeat that prices should not be too low. Producers need renewed investment to continue exploitation and exploration of oil fields, to develop infrastructure, pay loans and interest. The oil industry is a capital-intensive industry. We understand that manufacturers should be able to reinvest profits, show the marginality of the business. But if prices bite, this will cause problems for consumer countries. So current prices provide an opportunity for the economy to develop, and prices are above $ 50 / bbl. create an unnecessary burden on our financial situation. For India, price increases for every $ 10 / bbl. leads to budget losses of $ 15 billion.
Fuel and energy complex
This was announced by Putin at the final press conference of the G20 summit.
- How do you assess the effectiveness of the OPEC + transaction? Without it, the cost of oil would be lower now and India would be easier to develop.
- This year, the extension of the OPEC + deal to curb production occurred against the backdrop of a significant decrease in oil production and export from Iran, Venezuela and Libya. So the decision to extend production cuts is not good news for consumer countries.
- What do you think of the unstable situation in the Persian Gulf region - the region that is the largest supplier of oil and gas to India?
- We are really concerned about the recent unrest in the Strait of Hormuz (the only way out of the Persian Gulf. - "Vedomosti"). This is an important channel not only for global oil and gas supplies, but also for India. Two-thirds of oil and half of India's LNG imports pass through the Strait of Hormuz. We hope that the security situation in the strait will remain calm, otherwise we will see adverse consequences, including the volatility of oil and gas prices.
- How do you assess the prospects for oil production in the United States? Are you planning to increase the purchase of lightweight WTI?
- India is a big market. By the mid 2020s according to forecasts of BP Energy Outlook, it will overtake China in terms of energy consumption; by 2040, our market will account for more than a quarter of the growth in global energy demand. So we must look for a variety of sources of oil, whether it be the United States or Russia. In this regard, our companies entered into short-term contracts for the import of American oil, and we expect an increase in imports from there.
- Oil refineries in India lowered product prices in 2016, when oil prices fell to $ 26 per barrel. How did lower oil prices affect the country's economy?
- Low oil prices are not a good sign for most economies in the world.
What did we do in India when oil prices were low? We reinvested the saved resources intended for the purchase of oil in infrastructure, roads, education, in the health care system, in the development of agriculture, sewage systems, as well as in improving the quality of drinking water. So low prices created a good opportunity to meet our needs and develop the economy.
“We really want to increase oil consumption from Russia”
- India imports from Russia less than 1% of the oil consumed in the country, then why do you still consider Russia as an important partner? Are you planning to increase oil imports from Russia and by how much, are there any strict binding contracts?
- You can’t say how much exactly and from where India will buy oil in the future. There are no timelines or deadlines in this business, as in a newspaper. But after meeting with Novak, I really hope that while I am at my post and while Modi is in charge of the country, we will begin to increase LNG consumption from Russia. Now our import is 1.4 million tons per year.
We really want to increase oil consumption from Russia, our largest companies are negotiating this with colleagues from Rosneft. Now Indian companies buy Russian oil mainly at spot prices, but we intend to diversify purchases, companies are exploring the possibility of importing Russian oil under long-term contracts. In the future, we would like to increase the supply of crude oil from Russia, provided that we receive supplies at a competitive price.
“India aims to build an energy economy on gas”
- The contract for the purchase of LNG between Gazprom and Gail was signed three years ago. Now it turns out that you import Russian LNG more expensive than it is on the spot market. Are you not planning to change this situation?
- Do you think that I should be unhappy about this? Let's clarify one thing: long-term contracts are different from spot markets. Spot contracts are not constant, they are volatile. I have a different priority: the development of energy cooperation between India and Russia, the stimulation of business development. The way Gazprom and Gail work with each other is their prerogative. One is a producer, the other is a consumer. How a long-term contract will be structured, how it will work in dynamics is a question for the parties to the contract. But my task is to export gas and oil from Russia.
- If you look at the figures, gas consumption in India is growing, while domestic production is decreasing. Not fast, but declining. What opportunities do you see to increase gas imports? How much will you need in the medium term?
- First of all, I would like to ask you to double-check: gas production in India is not declining!
- Production is “on the shelf” and is sometimes reduced.
- Stable production and its decline are two different things. Now gas production in India is stable. Moreover, we started a reform in the energy sector, invested more than $ 30 billion to develop gas fields in the country. All of them will start production in 2020. In the next five years, production in gas fields in India should double. This is the first.
The second one. India is diversifying its energy basket domestically. We have almost completed this process. We are focusing on liquefied biogas and have launched a program under which the government provides off-take guarantees to domestic biomass gas producers.
And one more thing: in the global development scenario of 2020–2025, if we compare oil and gas, most of the investments in the development and production will go to gas projects.
India imports 8 million tons of LNG under contract from Qatar. But we also have three long-term contracts with Australia, the USA and Russia. Thus, under long-term contracts, we purchase 18 million tons of LNG per year. Now look at what prices were in 2014 for LNG: about $ 15–18 / MMBTU. And today, these prices are very affordable and reasonable.
So India should continue to benefit from relatively low prices for hydrocarbons and not only increase their purchase, but also diversify its economy. To buy gas, for example, instead of coal. India is very focused on building an energy economy on gas. Gas is now cheap, environmentally friendly and affordable.
The current share of gas in India's consumption structure is significantly lower than the world average - 24%, we are working to increase this figure from 6 to 15% by 2030. To do this, we are investing in expanding the natural gas infrastructure, including pipelines, LNG import terminals and urban gas distribution networks. A week ago, we announced the start of the construction of the tenth gas distribution network, the infrastructure of which will cover about 65% of the country's territory.
- Maybe you see a more promising purchase of gas through the pipeline systems, is there a project for the construction of the Turkmenistan-Pakistan-Afghanistan-India pipeline?
- Yes, there is such a project - TAPI
- ... or Iran - Pakistan - India (IPI). Two years ago, Novak said that Gazprom would help with the construction of this pipeline.
- We have to take into account the changing world geopolitics.
- But are you interested in such a project?
- We have to take into account the changing world geopolitics.
- That is, you refused plans for the construction of such a pipeline?
- I would be interested to see how this task can be dealt with in the current geopolitical situation.
But at the same time, a joint research group was created between Gazprom and Indian companies, which identified 10 pipeline routes, including seven routes on the eastern side of India and three routes on the western side for the supply of natural gas. Now we are discussing the most optimal Russian gas supply route for the domestic market in India.
“We are very comfortable with Russia”
- Are there any types of investments in Russian LNG projects?
- Gail is negotiating with Novatek and is looking at the opportunity to join the Arctic LNG-2 project - they are looking for an opportunity to invest, get a small share. So in Russia we are trying to act in accordance with our strategy regarding LNG projects. We have investments in Australia, USA, Mozambique. And we have a long-term contract with Qatar and Russia.
If you look at new projects, we first make investments and then we get long-term contracts. All this is subject to our common desire to increase the share of gas in India’s total energy basket.
- Are Indian companies considering the possibility of acquiring 10% in Arctic LNG-2?
- I can only say that energy cooperation between Russia and India will grow. But the details ... Let's leave the details to the people from the companies. We are talking about investments with all the large companies from the public sector. " Rosneft " - a very reliable partner, " Gazprom " - it is a pleasure to work with it. So we have a very good relationship with everyone.
- Do you plan to increase your presence in the Russian oil industry?
- We have five major projects in Russia. First of all, we invested in Sakhalin-1, the Rosneft Vankor cluster. Also, Indian companies invested in oil projects in eastern Russia - Taas-Yuryakh. Of course, we are negotiating with Rosneft about future investments. " Rosneft ", by the way, offered to us to participate in the creation of a large oil cluster in the east of Russia. I hope that during the Eastern Economic Forum, Russian President Putin and Indian Prime Minister Modi will say something about this.
- What can you say about the new Russian project in the Arctic region - Vostoil, combining the Vankor oil and gas field and the new assets of Rosneft? Are Indian companies planning to participate?
“ Rosneft offered us a new project, and we are interested. I am sure that in the near future Indian companies will be able to expand their participation in new projects entering the Arctic region of Russia. During our discussions with the Russian leadership, we will focus on such opportunities. But it’s too early to reveal the details.
- In 2018, there was a court case between ONGC Videsh and Rosneft due to oil flow from the Severnoye Chayvo field to the neighboring Chayvo field. How much did the participants in the Sakhalin-1 project pay Rosneft following the outcome of the dispute? Do you think this is fair?
- I am sure that the issues mentioned are resolved in accordance with Russian law, as well as with the terms of interaction between companies from India and Russia.
- Now only ONGC has an off-take oil contract in the Sakhalin-1 project. Do you think it is advisable to increase the number of such projects around the world, including in Russia?
- As I have already said, Russia is a key partner of India in the energy sector. And over the past five years, when the country was under the leadership of Modi, our cooperation in the energy sector has significantly strengthened. This means more investment in oil and gas projects in Russia, more off-take contracts. We have already begun to receive gas from Russia by this principle, we really want to get oil in a similar way, because our consumption will continue to grow.
Indian oil companies are interested in take-off contracts from those foreign fields where they have already invested. To a large extent, this possibility depends on the conditions of the majority shareholder of the asset - does a minority participant allow to conclude such a contract.
- The Indian economy is growing regardless of the current trade and economic war between the US and China and the general slowdown in economic growth in the world. What is your forecast for oil consumption in India in the near future and in the long term until 2040?
- Humanity will always need more energy. The only question is how clean and safe it will be. Technology provides us with new and new sources of energy. First there was coal, then oil, gas, renewable sources. Gradually, energy is becoming safer for the environment. Now we have started talking about hydrogen fuel. So I believe that thanks to the current economic model, science will present us with various possibilities for obtaining cleaner energy. And so it should be.
- How does the confrontation between the US and China affect the metallurgical market in India?
- Now India itself has everything necessary for the production of steel. And we are the second largest steel producer in the world by production. We have both iron ore deposits in the country and good sources of coking coal. Of course, depending on the enterprise, our companies have to purchase coking coal. And we are now considering one possibility in Russia. Now we buy coal from different parts of the world. We are also starting to consider the possibility of entering export steel markets, but this is in the long term.
If you look at our domestic market, I do not see a single threat to it due to the aggravation of the trade conflict between the United States and China. Our steel industry is very stable. For a long period of time, we can concentrate on the domestic market. It will provide for itself.
- How do anti-Russian sanctions affect your relations with Russia now?
- I already answered - the business is growing.
- Yes, it is growing, but maybe there are some risks?
- We are very comfortable with Russia. This is a very old friend of India.
