Oil and Gas Sector – HELP, Open Acreage Policy, etc.

After Ukraine, the new energy disorder

Note4Students

From UPSC perspective, the following things are important :

Prelims level : Not much

Mains level : Paper 3- Energy security and challenge

Context

Our long-standing “friend“ (Russia) is now in the bad books of our other friends (the US and Europe) and in a deepening relationship with our adversary (China). The Gulf countries are crucial for our energy security but Russia has replaced them as our principal supplier

How Ukraine war is changing the energy policies

  • Six months back before the start of the Ukrainian conflict, there was a deepening sense that fossil fuels and the industry built around them were in terminal decline.
  • After the Ukraine war began, the petroleum market is tight and prices are ratcheting up.
  • Oil prices are close to $120/bbl and gas prices have jumped 500 per cent year on year in Europe.
  • The regulatory constraints on petroleum exploration and distribution infrastructure have been eased and several countries have removed the output limits on thermal power generation and reopened the coal mines that were closed.
  • The share prices of the oil majors are trading at multi-year highs.

Three issues that influences India’s energy policy

1] Long term implications of buying oil from Russia

  • India is now a major purchaser of Russian crude.
  • Last month, it reportedly purchased an average of 1.2 mbd.
  • If this figure is correct, Russia is now our largest provider of crude oil surpassing Saudi Arabia and Iraq.
  • The reason for this ramp-up is the price discount offered by Russia.
  • The decision is driven by good economics and energy security.
  • The Western world does not, however, see it this way.
  •  The question does arise: What might be the medium to longer-term implications of our “support” to Russia on relations with Capitol Hill, the UK and the European Commission?

2] Increased economic and energy ties of Russia and China

  •  Russia and China have, for long, shared the view that the US is their biggest security threat.
  • China also increased the purchase of Russian oil and gas.
  • This tightened economic and energy embrace has implications for India.
  • Several questions will need to be addressed.
  • Russia’s role in India-China conflict: How might a post-Ukraine weakened Russia that is in hock to China respond to India in the event matters deteriorate on our border with China?
  • Will they be reliable providers of crude oil, military equipment, minerals, and metals essential for our green transition?
  • Will they be politically autonomous or client states?

3] Important role of the Gulf states

  • The Ukrainian crisis has forced a presidential u-turn. Later this month, President Biden will visit Saudi Arabia.
  • Several other European leaders will also beat a path to the Gulf, all in the hope of extracting a promise of higher production to lower oil prices and some to negotiate gas supply deals.
  • India needs the Gulf producers for supply security. But it also wants oil prices to come down.
  •  The position of these producers in the reordered post-Ukraine energy landscape is, therefore, of relevance.
  • Will they respond positively to the courtship of Russia/China, move back into the Western fold, or stay outside both orbits, neutral and opportunistic?
  • The answer will bear on India’s energy security.

Way forward

  • Integrated energy policy: What we need is a mechanism for the development and execution of an integrated energy policy.
  • This is because currently there is no executive authority responsible for energy.
  • There are ministries responsible for components of energy policy but no formal mechanism for aligning their separate approaches.
  • The Ukraine war has disrupted the existing energy order.
  • The new energy (dis) order has created fissures that impact our national security, economic growth, trade, clean energy supply lines, transfer of technology and international relations.
  • We cannot, therefore, afford to continue with our existing siloed approach.

Conclusion

The Ukrainian crisis has radically altered the contours of the global energy landscape and created a tangle of relationships and issues for India. To smoothen this tangle and address the issues India should adopt “a whole of the system” approach to energy policy.

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