How to handle impact of Ukrainian crisis on India’s energy sector

News: Ukrainian crisis will result in negative effects on Indian energy sector. The article explains how would it effect the Indian economy.

Read – How high oil prices will affect the Indian economy?

In addition to the factors mentioned in the previous articles, uncontrolled increase in crude oil prices will have following impacts on Indian economy:

Exports: It will negatively impact our earnings from petroleum products (diesel, petrol, naphtha). In 2021, these products accounted for the highest share of export earnings.

India’s assets in Russia: ONGC has stakes in many holdings in Russia. After the Ukraine conflict, the value of these assets has eroded sig significantly. Similarly, in India, Rosneft (the Russian national oil company) operates the 20 mtpa refinery in Vadinar through Nayara Energy. Now, Indian traders will face difficulties in looking for alternatives.

What are the significant factors that are changing global energy scenarios?

First, Energy cooperation between Russia and China is increasing after conflict. Only in the last week, an agreement has been signed to build a second gas pipeline to China christened “Power of Siberia 2”.

Second, the US, as the largest producer of oil in the world, will be able to make up for the shortfall, however, the energy sector in the US is controlled by profit-maximising private corporations. Supplies will head towards the highest bidder.

Third, Saudi Arabia (SA) has significant spares, low cost, producible capacity (approx 3 mbd) of crude oil. However, the US, even after pressurizing SA, has not been able to get this done.

Fourth, China is holding significant amount of rare earths, minerals and components that are required to make the transition to clean energy possible.

What are the lessons for India from the current energy crisis?

India needs to understand the supply, demand and geopolitical trends to understand the trajectory of the energy market. The following points can be taken into account while framing the energy policy:

1. India should frame its policies with the expectation of energy market volatility in the future.
2. Strategic reserves should be built to safeguard against the unexpected.
3. Reviving the negotiations with Turkmenistan and Iran about a transnational gas pipeline.
4. Strong efforts are required to decouple the supply chain dependence on China for the minerals and components required for the clean energy transition.

Source: This post is based on the article “How to handle impact of Ukrainian crisis on India’s energy sector” published in Indian Express on 7^th March 2022.