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Why India Is A Front-Runner As The Gulf’s Main Energy Partner Ahead Of China and Japan?

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Arabian Gulf energy exporters are looking for their main energy partner in Asia. A flurry of activity in recent weeks has moved exciting India ahead of reliable Japan and lucrative China. EurAsian Times gets you an analysis by Robin Mills – the CEO of Qamar Energy.

Indian Prime Minister Narendra Modi arrived in Abu Dhabi on Friday, his third trip in four years. Sheikh Mohammed bin Zayed visited India in February when Adnoc chief executive Dr Sultan Al Jaber signed an agreement for oil storage in the country. ONGC Videsh, the main Indian government oil company, along with state firms Bharat Petroleum and Indian Oil Corporation (IOC), have taken stakes in Abu Dhabi’s oil production and exploration licences.

Saudi Aramco and Adnoc are planning a $60 billion (Dh220.4bn) refinery and petrochemicals complex in India, in partnership with Bharat, IOC and a third state company, Hindustan Petroleum. Initially, to be at Ratnagiri in Maharashtra state on India’s west coast, land acquisition problems seem to have pushed it to Raigad, 250 kilometres further north and closer to Mumbai.

Last week, Aramco’s inaugural earnings call covered preliminary plans to pay $15bn for 20 per cent of Indian private conglomerate Reliance Industries’ refining and petrochemicals business. The reported price for the stake in Reliance, significantly above multiples for comparable deals, shows the importance of Aramco’s introduction to India. This urgency would be reinforced if the Maharashtra refinery is further delayed.

While China has been wooed for years, and Aramco already has joint-venture refineries there, India is increasingly the key future energy market. The US has largely disappeared as an oil and gas importer because of its shale boom, while environmental pressures and mature economies and demographics see the appetites of Europe and Japan for hydrocarbons slipping. Other Asian markets such as Vietnam, Indonesia, Pakistan and the Philippines are fast growing, but none can compare in scale with the two continental giants.

India’s population of 1.3 billion will likely outstrip China’s as early as 2024. After lagging China for more than a decade, Indian economic growth has been a little higher than its Asian rival since 2014, and estimated expansion this year of 6.2 per cent would match the Middle Kingdoms. China’s economy is maturing and growth is slowing, even before the current escalating trade war with the US.

India remains much less wealthy and uses barely a quarter of the energy per person and less than a quarter of the petrochemicals that are used to make plastics in many consumer and construction products. Officially, there are only 22 motor vehicles (excluding motorcycles) per thousand Indians, compared to 179 in China.

Several of Mr Modi’s aims are likely to boost energy demand. His government has not quite achieved its goal of tripling road building, but highway construction has doubled. Poorer and rural households have been offered loans and subsidies to switch to using bottled gas for cooking instead of polluting wood, dung and kerosene. In April last year, it was announced that all villages in the country had been connected to electricity, though around 200 million people remain without.

All these statistics suggest that, while China remains the incumbent, India offers brighter long-term energy prospects. Yet there are several challenges in the way.

In the immediate future, the fears of global recession and trade barriers are affecting India too, with its growth prospects downgraded. Despite the “Make in India” aim of boosting manufacturing to a quarter of the economy, it remains stubbornly stuck around 15 per cent.

Its lively and fractious democracy and federal structure should be more sustainable than its northern neighbour’s authoritarian capitalism, but can hinder big infrastructure and industrial projects, such as the Maharashtra refinery. Crowded cities and gridlock limit the practical number of private vehicles, and fuel prices are significantly higher than in the US and China.

While China has moved boldly in the past couple of years to replace coal with natural gas to clean up its notoriously filthy air, India’s cities have become the most polluted in the world, occupying 22 out of the bottom 30 slots. Annual gas consumption has not grown since 2010, held back by insufficient domestic supply, high prices for imports and a preference for cheap domestic coal.

With rival Pakistan, insecure Afghanistan and US-sanctioned Iran to the north-west effectively barring land access to Middle Eastern and Central Asian gas, Delhi has to rely on liquefied natural gas (LNG) imports that are usually more expensive and perceived as less secure. The current glut of LNG might be gas’s opportunity finally to make some inroads.

India’s energy dowry will not be paid solely in fossil fuels. Since 2017, the country has added 11.1 gigawatts of coal power, but 30.4 gigawatts of solar and wind. Electric rickshaws and motorbikes are popular. Larger battery vehicles have struggled for traction, but policies to encourage local manufacturing of electric cars, offer subsidies and cut sales taxes may lead to progress towards the impossibly ambitious target of phasing out oil-fuelled vehicle sales by 2030.

In the longer term, climate change threatens the reliability of the monsoon, and the Himalayan glaciers that supply the Ganges, the Brahmaputra and the rivers of Indian-administered Kashmir that join the Indus. Agriculture still employs more than two-fifths of Indians, making climate a direct issue of jobs, economics and votes.

India’s tremendous economic and energy future explains its assiduous courting by leading national oil companies. However, its political and regional complexities, environmental and infrastructure challenges mean its energy story will not repeat China’s trajectory. Prospective partners can prosper, if they prepare.

Robin Mills is CEO of Qamar Energy and author of The Myth of the Oil Crisis. 

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