Interview with Sambit Mohanty, Asia Energy Editor, S&P Global Commodity Insights

1. What do you think will be one of the main themes for Asian oil markets in the near to medium term?

Asia is expected to account for the bulk of global oil demand growth in 2024, but strong economic growth will help India's demand growth edge past that of China, where economic headwinds will likely keep a lid on appetite for fossil fuels. Our own forecast suggests that South Asian demand will likely increase by 3.2% in 2024, exceeding mainland China's 2.9% in 2024. The International Energy Agency has recently said that India' will become the largest source of demand growth from now until 2030. And in the same period, oil demand growth in developed economies and China will initially slow down and then subsequently go into reverse.

2. Building on what you have already said, India is surely emerging as the brightest spot for oil demand. Many refineries are still pursuing expansion. How will the refining outlook shape up in India over the next few years?

India will be one of the few countries to witness refining capacity growth over the next few years, but expansions will reflect a bigger share of petrochemicals as refiners look to widen their product slate to reduce overdependence on transport fuels. India's state refiners' expansion programs would focus increasingly on boosting conversion ratios from crude to petrochemicals to about 10%-15%, from around 4%-5% currently. But at the same time, there is a need to be conscious of their responsibility to fight climate change. As a result, refiners will need to increasingly use technologies to ensure that emissions are minimized.

3. You recently met with many Indian oil and gas CEOs as part of the India CEO Series by S&P Global Commodity Insights. You also had an interaction with India's petroleum minister Hardeep Singh Puri. What were the key points that emerged from those discussions?

As part of the India CEO Series, I spoke to many government and industry leaders in India's oil and gas sector to get insights on how those companies are planning to strike a balance between traditional and new businesses at a time when energy transition is changing the industry's landscape, while geopolitical turbulence is throwing up new challenges. The key theme that emerged was that India must ensure affordable oil and gas for its citizens by continuing to invest in the sector, while making an orderly transition to clean energy without vilifying fossil fuels. Also, as energy transition gathers pace, India is hoping that gas can act as a bridge fuel, with domestic production going up at a healthy pace. The country is also nurturing ambitions to be a major producer and consumer of green hydrogen. It also expect biofuels to place a crucial role in the country's energy mix.


India's Minister for Petroleum and Natural Gas Hardeep Singh Puri with Asia Energy Editor Sambit Mohanty

4. For Asia as a whole, one of the key themes on the supply side has been the drastic change in oil flows since the Russia-Ukraine war started. If you can share your insights on how the oil flow map has evolved and what's in store for the foreseeable future?

The spotlight will remain on Asia's unwavering appetite for Russian crude which has catered to refiners in India and China in a big way since the start of the Russia-Ukraine war, tilting the balance away from Middle Eastern supplies. Middle Eastern crude share in China's total import basket fell to about 46% in 2023, from nearly 53% in 2022, as Russia took the top supplier position in China. Meanwhile, India's crude imports from Middle Eastern suppliers tumbled 21% in 2023, while Russia contributed over 35% of India's total crude imports. India and China are expected to continue favoring Russian crude in 2024, leaving ample Middle Eastern sour crude supplies available for other Asian buyers, such as Japan and South Korea.

5. Staying on the same supply theme, with OPEC+ deciding to extend its production cuts, do you think there's a reason for Asia to worry?

Asian crude buyers are unlikely to face a supply squeeze following extended production cuts by OPEC+ and Russia's move to slash output by an extra round. This year, there will be plentiful non-OPEC supplies to fill any potential void. While the recent developments have largely laid out a clear near-term supply roadmap for global crude oil for the next few months, a feeble market reaction to those decisions suggests that demand growth, mainly in Asia, may fall short of pick up in overseas supply on the back of rising production in countries, such as the United States and Brazil. The International Energy Agency said that with stronger-than-expected output from key American producers this year, it expected global oil supplies to average a record 103.8 million b/d in 2024.

6. How important do you think continued investments in upstream oil projects will be for global energy security?

Asian countries will have to keep investing in the upstream sector to ensure higher oil and gas production to avoid possible supply problems or volatile energy prices, but there is a need to embrace technologies that are more environment friendly. On a global scale, there will be a need to pursue multiple pathways to ensure uniform energy transition for all. There is no one-size-fits-all solution to a sustainable energy future.

7. Do you think the Red Sea crisis will prompt Asia to rethink oil policy or near-term supplies are largely intact?

Asia may not witness dramatic changes to near-term oil supplies amid the ongoing Red Sea crisis, but refiners are chalking out alternative plans to ensure steady feedstock flows in the event of an escalation. These developments could potentially inflate insurance costs and crimp refining margins. However, the strategic push among Asia's top importers to massively diversify their import baskets over the years, as well as expanding strategic storage, will come in handy to ensure smooth and uninterrupted flow of feedstocks. That said, a series of attacks on shipping in the Red Sea have compelled traders and suppliers to explore alternative routes via the Cape of Good Hope but crude shipments to countries like India and China have remained largely unaffected.

8. As geopolitical tensions mount, do you think this will make oil storage expansion imperative in Asia -- for example in countries such as India?

India's vulnerability is apparent, especially in the face of recent disruptions, such as those witnessed in the Red Sea or heightened tensions in the Middle East. Any unforeseen situation along the supply route has the potential to jeopardize energy security. This underscores the need for strategic measures and investments to enhance the country's energy resilience and mitigate risks associated with external dependencies. Indian Strategic Petroleum Reserves Ltd. currently have a capacity of 5.33 million mt, providing for about 9.5 days of total net oil imports. In addition, state oil companies hold storage facilities for crude oil and petroleum products for 64.5 days of total net imports. Adding those two numbers the current total national capacity for storage of crude oil and petroleum products stands at 74 days of total net imports. On the other hand, IEA member countries are required to ensure oil stock levels equivalent to no less than 90 days of their net imports.

9.The big debate for Asia is the debate on cleaner vs cheaper fuels. With the region dependent on oil and coal in a big way for its energy needs, do you think Asia's policy dilemma is here to stay for now?

Asia today is relatively better placed to strike a balance between providing affordable and sustainable energy, as well as ensuring energy security, compared to where it was a few years ago. But the biggest headache for policy makers in the region will be that the pace at which Asia can move away from fossil fuels -- oil, gas and even coal -- won't be anywhere near the speed at which the Americas and Europe are embracing the changing energy landscape. Although renewables, such as hydrogen and solar, have started figuring in ambitions of many Asian countries, the region's addiction to oil and coal is something that's not going to go away anytime soon.