What ails the oil industry?

The oil and gas industry is one of the largest sectors in the world economy in terms of dollar value, generating an estimated US Dollars 3.5 trillion in revenue annually. Oil is crucial to the global economic framework, especially for its largest producers: the United States, Saudi Arabia, Russia, Canada, and China.

According to a report of the Organisation for Economic Co-operation and Development,) in 2019, 35.23 percent of all oil consumed in the OECD was related to motor vehicle usage in the road transport sector. A little less than 20 percent is used for the generation of electricity. Roughly 14 percent is used in the petrochemical industry.

 

Different countries have different reasons for reducing their dependence on oil. For producers listed above the fear is of the kitty getting smaller year after year due to pumping the available underground deposits. The concerns of oil users, in general, is the pollution issue and the price fluctuations. Some users like India are heavily dependent on imported petroleum products, and the volatile prices and tight supply situations are major worries. Mankind has now realized that the advantages of fossil fuels come with a devastating downside. We now understand that the release of carbon dioxide from burning fossil fuels is warming our planet faster than anything we have seen in the geological record. One of the greatest challenges facing humanity today is slowing this warming before it changes our world beyond recognition. The universal consensus, therefore, is to work on alternate, safe, and sustainable energy sources. The trend is clear: according to a report by Ember and Agora Energiewende, 38% of Europe’s energy in 2020 came from renewable sources. Fossil-fuel generation accounted for 37% and the remaining quarter came from Nuclear.

Europe, the world’s largest market, being powered by majority renewable sources, proves that renewable energy can scale and become the dominant source of energy in complex and energy-intensive economies! I think this shift is a signal to American and Asian markets to make the transition faster. The only relevant question, therefore, is whether the transition will keep it's current ‘fast, but not fast enough’ pace!

Let us go to where the shoe pinches: In the US, the transportation sector, (dominated by the use of the nation’s highways, for both freight and passengers) is almost solely dependent on petroleum, and produces about one-third of the country’s share of greenhouse gas emissions arising from energy us. The current trend is plug-in hybrid vehicles (PHEVs) that use electricity plus any of the conventional fuels on a large scale to have a significant effect on petroleum consumption. Longer-term, after 2030, major sales of hydrogen fuel-cell vehicles (HFCVs) and battery-electric vehicles (BEVs) are considered possible.

I think India could follow the US example before rushing to Evs straight because otherwise, the country’s huge automobile sector would collapse creating a gaping hole in the employment sector.  Coal and biomass are in abundant supply in India, and they can be converted to liquid fuels for use in existing and future vehicles with internal combustion and hybrid engines. This may have to wait for a more potent carbon-capture technology than what is available today.

Biomass is a renewable resource that, if properly produced and converted, can yield biofuels with lower greenhouse gas emissions than petroleum-based gasoline yields. In the USA it is mandatory to blend 10% Ethanol in Petrol since 2000. Our Govt has decided so in June 2014 through an executive order. Now Ethanol blending in Diesel and Petrol is becoming less and less profitable day by day to our Oil Manufacturing companies including the PSUs, and they are quite unhappy about it!

Clean energy can be manufactured in many technologies including; wind, solar PV, solar thermal, hydro, and biomass. It may be good to know that our solar installed capacity was 44.3 GW as of 31 August 2021. Modi government had an initial target of 20 GW capacity for 2022, which was achieved four years ahead of schedule! Solar power for industries is quintessential for meeting the 100 GW solar mission of Modi Government. Please note, out of the total 1247 MW rooftop solar installations as of December 2016, 34% was for industrial establishments! Industrial Solar Power Systems are gaining popularity in India with major industries resorting to solar power for avoiding grid outage situations. With the provision of open access in most of the states, industrial solar power systems are increasingly used by textile, cement, paper, steel, chemical, dairy, and ceramic industries to cut down their electricity expenses. Heavy peak usage and large available area make solar a perfect energy solution for industries.

Another new technology being discussed for industrial use is with iron as a circular fuel – iron being yet another resource available in plenty form its ores now exported by India! Combusting finely ground iron powder adding oxygen produces heat and rust – the only emissions of the process. Then, using renewable energy the rust can be converted back into iron via electrolysis. Given the availability of renewable energy for electrolysis, the entire process is carbon-free.

Among users, India ranks third after the US and China, though our consumption is roughly a fifth of the US and a third of that of China. The US, imports more than 50 percent of its fuel in spite of the so-called Shale Oil glut! India has around 80% import dependence on crude oil and 45% for natural gas/LNG. India’s crude oil import bill soared nearly threefold in the first quarter of the fiscal (Q1FY22) fuelled by a sharp rise in global oil prices to USD 24 billion, further raising concerns for policymakers. (Volume growth was, a modest 14.7% in the June quarter at 51.4 million tonnes.) Remember India’s total tax revenue is only USD138 billion! The total Excise duty collection from petrol and diesel is just about $40 billion. This is one of the main reasons for the urge to cut petroleum fuel by exploiting alternate energy sources.

India is not going ahead with strategies to cut down consumption of fossil fuels because of its concern with the environment! Damaging our economy is not certainly the way to deal with climate change as a member of the comity of nations. And in terms of oil, what will take its place? The world hasn’t found a good substitute for oil, in terms of its availability and fitness for purpose. Although the supply is finite, oil is plentiful and the technology to extract it continues to improve, making it ever-more economical to produce and use. The same is also largely true for natural gas.

Beyond the use as fuel, petroleum has significant growth potential. The current per capita consumption of petrochemicals products is low, but the demand for the same is growing. A wide range of chemicals like Urea, Caustic Soda, Soda Ash, Sulphuric Acid; Dyes, Dye Intermediates, , basic chemicals like Ethylene, Propylene, Benzene and Xylene; the intermediates like MEG, PAN and LAB etc fibre intermediates, synthetic fibre polymers, and elastomers and fine chemicals, speciality chemical... Per capita plastic consumption in India is still hovering at 7.0 kgs as compared to 46 kgs in China and 65 Kgs in Europe. This signifies huge potential for future growth going by the current global average per capital consumption.

Now about our cars: I have two beautiful cars running on petrol –Honda Accord and a CRV (my dream car) – and I am not ready to go for even a Tesla. But then, I am old and resistant to change! But I realize we are in the middle of the biggest revolution in motoring since Henry Ford's first production line started turning back in 1913! Many industry observers believe we have already passed the tipping point where sales of electric vehicles (EVs) will very rapidly overwhelm petrol and diesel cars.  The world’s big carmakers are getting ready for the change. Jaguar owned by Tatas plans to sell only electric cars from 2025. They have launched their electric compact car Nexon. Volvo from 2030 and the British sports car company Lotus says it would follow suit, selling only electric models from 2028. EVs the world over are able to travel farther than ever on a single charge, shaping the future and promoting smarter, cleaner transportation. Volkswagen, Hyundai, and Tesla were the top-selling electric car brands in Germany during the first quarter of 2021 while the VW Up was the favorite BEV in Q1. Just over a decade ago, Nissan became the first automaker to offer a mass-produced car – the hatchback Leaf- that ran on batteries alone. Mitsubishi i MiEV, was a pioneer, launched for fleet customers around the same time. But Japan, with its huge investment in gasoline-electric hybrids, has big reasons to proceed slowly. So the world ic changing!