India has been a key actor in the reshaped oil market of the past two years, absorbing much of Russia's redirected crude exports to cement its position among the world's fastest-growing oil demand countries. And it is pursuing further growth in oil products, through ambitious plans for refinery construction. But it remains a price-taker, and has been vocal on the need to allow developing economies room to breathe. India's oil minister Hardeep Singh Puri spoke to Argus at the Adipec conference in Abu Dhabi on 3 October about Opec+, oil prices and supply, and those refinery plans. Edited highlights follow:
You were expressing concerns around Opec production cuts when prices were around $75/bl. Now it is a different situation, and we are at around $90/bl. What is your message to Opec and Opec+ ministers? They are about to meet again to decide if any changes are needed to policy.
There is a context to everything. When I was expressing concern, even then I said it is your sovereign right, every producer's sovereign right, to decide how much crude oil you want to produce. You tell me that you don't determine the price, to which I say my understanding is that the amount of oil which is produced and released into the market in turn determines the price.
So, when at $75/bl, I was making a philosophical point. Today, well the price has come down by $5/bl since yesterday, but I'm making a point in a different context. What has happened in the last few months is that 5.2mn b/d of oil production has been taken off through voluntary production cuts. I am not getting into who has done it or why it was done. As against 102mn b/d that you had, you're down by 5.2mn b/d. Now, what has happened is they say that "we are trying to anticipate" because there is a reduction in demand. This is neither here nor there. You have got a problem on your hands.
This has happened once earlier. In 2008, the price had gone up to $130/bl and it came crashing down to $36/bl, which was neither in the interest of producers nor of consumers.
My limited point is that if you think that an unrealistic price can be taken and sustained by the market, then I place the following facts before you. It is not my opinion, the fact is half the world is either under, in, or slightly below recession. Even the economies which are not in recession are flirting with the whole idea of recession. Quarter to quarter, growth is 0.1pc down, 0.8pc up — that is not a very healthy situation.
Secondly, clearly you have a lot of inflationary liquidity caused by stimulus packages etc during the pandemic. You have the liquidity in the market, people have been trying to raise interest rates to mop up the liquidity. If on top of that you get high prices, then it tips that inflationary situation into a really big [arc]. That is the consistency in my argument of between $75/bl and $90/bl.
I talk to the main companies in the world, some of them think, well, it will peak and then come down to $70-75-80/bl. That's neither here nor there. We have to be responsible for what we do.
On behalf of India, my position has always has been that it's a sovereign right to determine how much you want to [produce], but don't be unmindful of the consequences. And it can become a self-fulfilling prophecy that demand will drop because people don't have the capacity to sustain it. My take is that in the last 18 months this has driven some 100mn people into abject poverty. People have gone back to using unconventional or non-conventional firewood for cooking and other purposes.
Therefore, it's not [a question of] how much it affects India. Of course India would be happier if oil prices were $80/bl or below, but India will survive. India has the capacity. We are also a major producing country now, we're also a major exporting country now. But it's a question of what happens in the global economy, which is far from recovered from a number of crises.
What about the idea that higher prices are needed to drive the investment required to sustain production in the longer run?
I have heard this argument many times earlier. Sure, there should be more investment. But when you take 5.2mn b/d out, it is not due to a lack of investment. You've taken it out because you want to do supply-side management.
So, if we talk about India's crude imports, the pattern of crude imports has obviously changed in the last year and a half or so. First we saw rising imports from Russia and then reduced flows from the Middle East. Over the last few months, we have seen something of a reversal on that side. How do you see this evolving going forward?
I think it's a very simple explanation. The Indian government doesn't buy oil. We tender. Our companies, some of them are purely private-sector companies, while some are public sector, but at arms length. They will issue tenders and they will buy oil from wherever they can get it at the cheapest price.
There was a time before February 2022 when our total imports from Russia wouldn't show up in any calculation. They were what you guys call de minimis — 0.2pc. It didn't show up. But you know where the market started going and Russia wanted to export etc. The Russians still produce 11mn b/d and they consume 4mn b/d or so. They still have to sell the 7mn b/d. So, what happens if India is not buying it? And if India starts buying Middle Eastern oil instead, then the price will go up even more. So, it's a complicated situation.
My own sense is that this price sensitivity being a determinant should also be seen in terms of the diversification we have done. Earlier we used to buy from 27 countries — we are buying from 39 countries now. And then there are all manner of people who come in and say, well, we want to sell oil. As long as I'm clear it's not sanctioned oil or something like that, we will buy it.
In terms of the Russian oil payment structure, is that something done in rupees?
There are some discussions on it. I think we've done a rupee payment with the UAE in one consignment, but it is a small percentage — 10pc only.
So, this is not something we are likely to see much more of in the future?
No, no, we would be happy to do it but then it takes two to tango. You need to work on an ecosystem to be able to do that. Somebody asked me today if I see de-dollarisation. I think it's too early for that. I still see the US as the major economy, the world's largest economy that's going to be around for a long time.
A big Saudi delegation came to India after last month's G20 summit. Were there any discussions around the Ratnagiri refinery joint venture with Saudi Aramco?
The discussion is still on but let me give you a perspective on that. Typically, a refinery in India is about 11mn t/yr (220,000 b/d). This predates me as minister. The discussion in Ratnagiri was for a large refinery of 60mn t/yr, which is huge. So, I think you're probably better off in terms of sure ground footing to have three refineries of 20mn t/yr each because there are local issues. Not just in India, even outside, I don't know if anybody has experience in producing and running a refinery of 60mn t/yr. It is very high.
We are keen on it. We are expanding our refining capacity. We're at about 252mn t/yr, we are taking that to 300mn-330mn t/yr and ultimately to 400mn-450mn t/yr. We have very good relations with the Saudis. Very important, not only in the energy sector, but elsewhere. But on individual projects, I would not know. We have a lot of actors who would act on this.
There were issues regarding land ownership around the refinery. Is there anything that could be done from the government side to move things along?
The government will encourage, but I think it's better if you can break it into three 20mn t/yr refineries rather than a 60mn t/yr one. There has been a lot of talk about it.
When you see the Saudis in China, for example, you're seeing a lot of downstream investment going into China. Is this something India is also looking at and thinking you'd like to attract as well?
We are open to all manner of investments. But obviously Indian companies will look at bilateral investments in terms of what is win-win for them. If they're already strong in an area, why would they want outside investment now? Fortunately, for the energy sector, we have a large number of companies who are doing very well. IOC, ONGC, HPCL and BPCL, they are doing well but are also looking to acquire assets outside. So, it is a question of synergies and doing good commercial negotiations.
So focusing on Saudi investment is not something India is necessarily looking to do?
India is looking to do business with everybody. India, we have $16bn of investment in Russia — Russia has $13bn of investment in India. There is a lot of Saudi investment which we welcome to India, from the UAE or all over the world.
Following recent discussions with Iraq, there was an announcement that India would like to increase oil imports beyond the total 1bn bl that it currently takes annually. Is there any reference point for the size of such an increase?
It's all price sensitivity. In India, the government does not do the oil buying. We don't do the target setting either. Typically, we used to import 4mn-5mn b/d roughly for our refining, out of which we equally divided 800,000 b/d between four or five suppliers, and the rest would come from outside. I've seen the Iraqis move up very quickly. I think it's over 1mn b/d [that Iraq supplies to India] now if you look at the total capacity. I see that the supply is increasing. And there is a good reason for all this. This is a tender which is being floated and you decide if you want to respond with a price. Some others may be discussing charging an Asian premium or some extra price etc, obviously the market will move away from that.
So this is more about economics than a political initiative?
There is no politics in this. We are happy with the politics of everyone. You know ultimately it is the price at which you can bring it to the consumer.
