Natural Gas Stocks Trickier Than Crude Stocks: Interview

Chennai: The country’s strategic petroleum reserves can support demand for around eight to nine days, while inventories held by refiners and finished petroleum products provide an additional 50–55 days. However, the situation is more complicated for natural gas. India imports roughly half of the gas it consumes, and the country has limited capacity to store liquefied natural gas (LNG), said Sumit Pokharna, Vice President Fundamental Research at Kotak Securities in an interview with Financial Chronicle.

How is the crude oil supply situation in India currently? What are the current levels of stocks?

The stock can be divided into two parts. One is the strategic petroleum reserve, which is available for eight to nine days. Then you have refining companies which have got some crude oil inventories, which they always keep and the finished product which has been produced through refining, which has been refined and has been kept as inventory. So even that, that is around 50 to 55 days. So, we are currently in a comfortable situation.

But if this war continues for more than two weeks then there will be concern out here. This was on the crude side but unfortunately, we do not have the capacity to store LNG and whatever India is consuming as a gas almost 49 % is imported gas. The dependency on imported gas is very high.

Unfortunately, we cannot store it and we don't have the capacity and there is a disruption in the Strait of Hormuz. As a result, we are not getting enough quantities of gas from Qatar. We have to look for alternative sources of gas. Gas remains a bigger tricky situation immediately in the short term. Crude and finished product still remain under control.

Q) The US has given us a 30-day waiver for buying crude from Russia. We have been buying crude from Russia as well as the Middle East earlier. So will it be enough for our requirements?

Earlier we were procuring from 27 countries. Now we have extended to 40 different locations. Now given that these ships are already in the sail, and will reach India, till then we have enough supply to maintain the situation. But beyond that what will happen if the war continues for a few months, then it becomes a chaotic situation.

My only concern is that because a lot of plants are running on gas, lot of industries are dependent on gas as a fuel and as a raw material. So, there we will see an impact.

We procure a maximum quantity of LPG from outside. We are importing that, particularly from Saudi Arabia. If there is a disruption on the Strait of Hormuz, then that supply gets impacted and that will hit the consumption of the common man. Government has asked refineries to reprioritize and use propane and butane to produce more LPG domestically.

The hit which we are seeing is more on the industrial side as of now. Whatever domestic gas which we are producing is anyway coming to city gas distribution companies and they are selling it to CNG or domestic PNG. But if this situation continues then that can become a problem for everyone.

Q) About domestic production of gas, how many days will we be able to survive with this gas?

Roughly, 50 per cent of what we are consuming is imported gas and 50 per cent is domestic gas. We need to procure gas from some other sources. Before this war we were procuring gas from four countries, including Qatar, Australia, and UAE. Because of the Middle East crisis, we have to source more gas from Australia or from the US.

I don't think we can manage it that smoothly. Some lag will be there and for that short term we might see some hiccups.

Q) Even in the case of crude oil, we were actually procuring from both Russia and the Middle East. Will we get more oil or whatever is required from Russia? Or should we actually tap some other alternative sources?

We are procuring from 40 different countries. The new countries which we have added are Brazil and other countries. But if this war extends for a time then we will see a big problem on the cost side.

Q) In the case of Venezuela or Brazil, the cost will be much higher and even the quality will be quite different from what we are getting from Russia and the Middle East. So overall for the consumer, how likely is it for the prices to go up in the near to medium term?

We can process any type of crude which is produced in the world. The cost of operating might go up because of the quality of the crude which we procure. When you are procuring crude at a higher price, working capital goes up, your interest burden goes up, operating cost goes up, that all leads to higher inflation.

Some of our neighbouring countries like China have been purchasing oil from Iran. How are they diversified their resources and how is the supply situation in countries like China?

The situation is far better than ours. If you look at the reserves, strategic reserves, they are holding for 30 days as compared to India having eight to nine days. So that's a big country as compared to India in terms of GDP and other things. They also have a lot of EV vehicles. We have taken a lot of proactive steps, and we are also moving in that direction but we are little at the early stages compared to what they have already achieved.

Q) Tell me something about India's oil exploration initiatives in recent years? I think we were much more self-sufficient a few years back. I mean our dependence has been growing so can you tell me about how much investments are going into oil exploration within the country?

Some countries are gifted by God that they have more oil reserves. And some countries do not have those reserves. India is also trying to discover and take effort. We have a lot of oil reserves in Andaman and Nicobar. Efforts have been going on to develop those things, but it's a very preliminary stage where we are right now. With the higher crude oil prices, more activity, more investment will go towards that. In future, we will make sure that we have an abundant supply of crude oil coming from there. And that will reduce our dependence on imported goods.

Q) In terms of renewable energy and electric vehicles, in a global space, where are we?

Obviously, we are moving a little slow. Lots of initiatives need to be taken because here we have seen that infrastructure of the ecosystem has not yet been set up properly. The EV charging stations, CNG stations, - the ecosystem is still at a preliminary stage. We are going in the right direction. Though these are baby steps, we need to push it up a little faster. And then once the ecosystem is set up, then customers will be very happy to take more or more towards EV vehicles.

Q) To sum up what should be our short-, medium- and long-term energy strategies?

Short term we believe that we should try to procure goods from wherever we get, maybe Russia and gas from Australia or from other countries so that there is no disturbance in the supply because price is immaterial. If you don't get a supply, then price can be anything. First, if you're getting a supply continuously then your price will remain under control.

In the medium term, the objective should be focused more and more and developing alternative energy sources and from a longer term perspective, we should make sure that we have a proper basket of all energy mix which include crude, coal and natural gas, alternative fuels like renewable sources, solar, wind, all should be there so that we do not get such shocks in the future. Lot of investment needs to be done, of foreign investments are required, and a lot of technology is required.