It’s Fast Slippin’ and Slidin’

CONTEXT: According to BP oil giant, global oil demand is going to plateau and decline; India should scrap expansion plans for refinery and switch to newer technologies such as electric. 

Reasons for Changing Energy Demand:

• Global Pandemic: Pandemic is going to emasculate the global economy until 2021.
• Excess Refining was deeply impacted during COVID, crashing the oil markets.
• Protectionism: Rise in inward-looking economic policies, such as the US-China trade war.
• Impetus to Electrification: Increasing government subsidies is making electric vehicles (EVs) and batteries cheaper.
• It will lead to the creation of glut of petrol and diesel in the market, which accounts for half of the refined products. 
• Railways, the biggest diesel user in India, is planning to completely switch to electric trains. 
• Global Warming: BP forecasts three case scenario for change in global oil demand due to policies aimed at reducing global warming.
• In case the business goes as usual- Plateauing very soon followed by a decline, from 98 million barrels per day (MBD) in 2025 to 89 million barrels per day(MBD) by 2050.
• In case there are moderate and drastic policies check on global warming then demand would decline to 47 MBD and 24 MBD respectively by 2050.
• Rise of Alternative Refinery Products: Refineries around the globe are switching from transport fuel to chemicals feedstock which will be converted to plastics and fibres.

Steps to be Taken By India: 

• Halting expansion plans for the refinery sector: Ambitious target of doubling refining capacity to 450 Million tonnes by 2030, should be reconsidered in changing global scenario.
• Halting of greenfield projects such as Ratnagiri Refinery built by BPCL in participation with Saudi Arabia is beneficial for India.
• Current refining capacity is at 250 Million Tonnes which is more than the total oil demand in India, which is at 213 million tonnes.
• India will grow faster than the rest of the world. Therefore oil demand will increase for a while before plateauing.
• But the decline in India would be more drastic as compared to business as usual scenario due to increasing impetus to electric vehicles.
• Increasing refining capacity would decrease export profitability.
• Switching to Oil-Chemical technologies: Creating a competitive chemical industry, which are novel refineries converting oil to chemical.
• The doubling proportion of chemicals in crude oil since lighter crude can also be used.
• Domestic Companies such as Reliance has already formulated plans to setup oil-to-chemical refineries, gradually phasing out diesel and petrol and rise of EVs.

• Support to Electric Vehicles (EVs): Government to provide support in switching from conventional fuels to an electric vehicle, especially in the sector of battery technologies. 

• Providing government subsidies is a step in the right direction.

• Setting up battery swapping stations: for commercial heavy transport vehicles such as trucks that need a larger battery to travel a long distance 
• Battery swapping takes lesser time, reduced cost for batteries and will help reducing prices of electric trucks.

• Affordable two-wheelers: Electric Two-wheeler market is expanding by making vehicles at an affordable price, while electric cars will advance slowly due to price-sensitive nature.

• Setup Committee: Government should set up a high powered committee with public and private players to prepare projections of oil demand, assessment of the impact of E-Vehicles and oil-to-chemical technologies.