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‘Need Balanced Approach Or It Will Be Chaos’: Indian Oil Chairman On Fossil Fuels Phaseout

For The Core Report: Weekend Edition, financial journalist Govindraj Ethiraj caught up with Shrikant Madhav Vaidya who is slated to speak at the upcoming India Energy Week 2024 on February 6-8

By The Core Team
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shrikant madhav vaidya

The 28th United Nations Climate Change Conference or COP28, which concluded last month in Dubai, ended with a call to move away from fossil fuels, which are coal, oil and natural gas. While India is following the same path, energy consumption in the country is growing rapidly. 

While the country is ramping up its renewable sector, and production of other non-conventional energy sources, a balanced approach in the phaseout of fossil fuels is needed. “The current forms of energy can't just disappear. There will be chaos,” Shrikant Madhav Vaidya, chairman of Indian Oil Corporation Ltd, told The Core. “In conventional fuels, we are seeing a growth rate [of] about 5.1 million barrels per day of crude oil consumption. We expect it to go to 7 million barrels per day by 2030. As the leading energy supplier of the country, we have taken adequate steps to ensure the energy security of the country by ramping up all the refining capacity of that,” he said.

“At the same time, [we] are ramping up our economies in the renewable space,” he said. Vaidya likened this to having a “bouquet of energies”. Different sources of energy, like renewable as well as oil and gas, would have to coexist for at least a few decades to come, he said. “And only then can we start lowering the conventional fuels,” he added. 

Vaidya highlighted how Indian Oil calls itself an energy company because it is firmly into other forms of energy – expanding into gas, biofuels, petrochemicals as well as green hydrogen. 

While Indian Oil is investing into newer forms of energy, they are not very capital-intensive at this point of time, Vaidya said. For instance, with biofuels, “we are investing in them also because we firmly believe that we have to demonstrate [or] make good solid examples for the entrepreneurs to follow,” he said. 

For green hydrogen, Indian Oil is focused on encouraging more demand. “We have to now use green hydrogen in the refineries because unless the consumption goes up the cost doesn't come down,” he explained. 

For The Core Report: Weekend Edition, financial journalist Govindraj Ethiraj caught up with Vaidya who is slated to speak at the upcoming India Energy Week 2024 on February 6-8. 

Edited excerpts: 

Let's say, a few weeks from now you woke up and we were in a world where there was no oil, all fossil fuels had disappeared for whatever reason. What would a company like Indian Oil do? 

Well, it's a good question, but let me tell you very candidly that we are already becoming an energy company. We are no more a fossil fuel company. So for me it will be business as usual because I am already drifting away from oil and gas so that there'll be no rude shock as such. We'll seamlessly go into the green transition.

We've just finished COP28 in Dubai. The world at large, at least the developed world, seemed to agree that we need to start phasing out fossil fuels. Obviously, for countries like India, this is still a way to go because this is only the first acknowledgment. If you were to use that as a starting point, where does India stand today in its energy path or its energy future? And what are we doing today and have to do to get there? 

First and foremost, let me touch upon COP28, whatever consensus was agreed upon. For the first time, the world has agreed to move away from coal, oil and natural gas, which are the principal causes of global warming. But at the same time, the text was very much balanced where it said that it has to be a just, orderly and equitable transition. I think that is the key point, that it should be just and equitable transition, and it can't be something that is very drastic. 

I think in India we are just following that path. We fully appreciate the fact that India, the oil consumption, or rather the energy consumption is growing by leaps and bounds because we are a very ambitious economy. We want to be 5 trillion by 2025 and 10 trillion by 2030. Obviously, once the economy grows, energy is the first input that is bound to grow. So we need to be available with the energy supplies for the nation for this rapid growth. 

Let me tell you, this is a very different scenario from the developed world. In the developed world, primary energy is undergoing a negative growth rate. In fact, in the US and Europe there's a negative growth rate, whereas in India, we are growing very healthily at the rate of 2.5% to 3%. 

I think that calls for a very balanced approach, that the current forms of energy can't just disappear. There will be chaos. The current forms of energy, be it from coal, oil, natural gas, they will continue to play their role. But at the same time, a country like India, which is a very responsible citizen in the global arena, we are ramping up our economies in the renewable space, in the other non-conventional forms also. 

We are having like a bouquet, it's a bouquet of energies. So there'll be not one against each other, but we will all contribute and be together to supply the energy needs of the country. I think that's the broad vision of the country. All will exist, coexist for some time to come, at least for a few decades to come. And only then can we start lowering the conventional fuels. 

I'll come to non-conventional in a bit, including what Indian Oil is doing, but let's talk about conventional and tell us about the current landscape for Indian oil, whether as a refining company, as a marketing company, or even as a petrochemical company.

Let me just add on here that Indian Oil, we call ourselves as an energy company because we are firmly into other forms of energy. But as you rightly said, our core business is the main business that we are still in, that is oil and gas. We are having a refining group capacity of nearly 80 million tons. The country has got a projection to have a refining capacity of more than 350 million tonnes by 2030, out of which Indian Oil is 80 today and we have already got projects on ground which are being implemented for 25 million tons. We will be 105 million metric tons per annum refining company by 2025-26 because all these projects are already more than midway through the execution. 

At the same time, we are expanding heavily in gas because we firmly believe that the gas will be a big transition fuel when we approach the net zero targets. So whatever way we are doing, we are expanding our retail network, our marketing network, our aviation network and also our LPG network. 

In our conventional fuels, we are seeing a growth rate because India today is about 5.1 million barrels per day of crude oil consumption. We expect it to go to 7 million barrels per day by 2030. As the leading energy supplier of the country, we have taken adequate steps to ensure the energy security of the country by ramping up all the refining capacity of that. 

Then you talked about petrochemicals. Well, petrochemicals work out a big bridge against the volatile oil cracks and we have got a low petrochemical intensity, I have to admit that. When I mean petrochemical intensity, I mean how much of crude gets converted to petrochemicals? Today our figure is quite low, about 5.9% only. But by 2030 this number will go to 15%. We are making massive investments in petrochemicals in all our grassroots as well as the brownfield refinery expansions. 

We are coming up with a world scale Naphtha Cracker at Paradeep which has got an investment of 60,000 crores. This is the highest ever investment by an Indian company in a single location. So, we are ramping up petrochemicals and since we have set ourselves a target of operational net zero by 2046, we are making huge strides in renewable energy, be it solar, wind. We have tied up with NTPC, we have tied up with SJVN, hydel power company. So our portfolio is like a complete portfolio, fossil fuels, renewables, as well as other forms of energy like hydel, et cetera.

Let me focus on petrochemicals for a bit. So how are you seeing the petrochemicals landscape from a consumption point of view and in terms of how, let's say products, consumers could behave in coming years and juxtapose with the fact that you are also trying to diversify away from, let's say, classic refining and classic distribution of product. 

India is a huge importer of petrochemicals today. In our honourable Prime Minister's vision of being Atma Nirbhar in all forms — whether it's energy or whether it's petrochemicals, it syncs with the vision of the prime minister for more petrochemical capacity. 

If I go by the consumption pattern today we are having a per capita consumption of eight kg per person per year whereas the global average is 30 kg per person per year. You can see there's a huge gap already from the global average. Obviously there's a big demand and as I told you, we are big importers and the non combustible use of crude oil is in petrochemicals. 

So petrochemical, when I say the crude oil consumption is going up, it's not only for fuels, it will be also for making the feedstock available for petrochemicals. And petrochemicals, be it the basic polymers, polyethylene, polypropylene, plus we have got newer projects coming for alcohol, oxo-alcohol, then polyvinyl chloride, rubber, styrene. I mean, we are trying to invest in all facets of petrochemicals because the need of the country is so huge and humongous in all forms. I think we are satisfying that. 

The one project I want to really highlight is the Paradeep petrochemical project that is coming up. It's a coastal project whereas so far with Indian Oil, we have got a big petrochemical complex at Panipat which is an inland refinery, inland location. So we are making investments in coastal projects also. So at the same time we also have the option to export to the neighbouring countries because our prime minister's vision is that we not only should be big suppliers, we should be a hub, be it for green hydrogen, for petrochemicals. So we are just in line with that vision of the prime minister. 

So a small history question here. I mean, why is it that so many refineries of Indian Oil are inland? Let's say Hindustan Petroleum, Reliance, the newer ones, ESSAR, they're all on the coast. 

Actually the answer is in the fact that Indian Oil was created to cater to the demands of the country. We were not formed to export products. So Indian Oil has all the refineries in the demand centres of the country. I'll put it that way. And they are in the inland part of the country. 

It's very easy to transport crude oil instead of transporting all the products. So like place of Panipat, we just transport crude oil from Kandla, about 1500 kms…and the entire area gets fed by all the products. So we are at the demand centres. That's the difference. And our business model is not for exporting, it's for catering to the demands of the country. That is the fundamental difference between me and any private company. 

So you have 15,000 kms of pipeline through which you're supplying or feeding out this product. So tell us about how you're seeing the distribution side and some of the supply chain and logistics challenges. And it's not necessarily a challenge, but how are you seeing that evolve in coming years? 

Okay, so you have given me a full toss. I can just talk on and on about this. Actually, you see, being the least cost supplier is the fundamental question. And Indian Oil today, that 15,000, what you said is actually 19,000 kms of pipeline and it is growing by the day. We firmly believe that our network, which is very, very strong intricately through the nation, gives us a big strength over any other company because we have got more than 120 depots and terminals. We have got more than 100 bottling plants all across the country, more than 100 aviation fuel stations across the country, and eleven refineries and the grid of logistics is immense. 

It's such a complicated thing that we are able to supply to any location from two refineries. That is how we have built our logistics model. In case a refinery goes for a shutdown, that particular area doesn't suffer. We have got an alternative supply lined up from a different refinery. That's how we have built up the grid, that entire web of logistics. And we have got a very advanced logistics model, we call it the Sand Model—supply and distribution model. That makes sure that whatever we supply through rail, road, pipelines or coastal, we are able to be the least cost supplier across the country. So it's a very, very complicated game. 

Just to give you numbers, 40,000 trucks are flying daily from our, what should I say, secondary logistics. The primary logistics is the pipelines to the depots and terminals and from there the secondary logistics go up to the retail outlets. So nearly 40,000 trucks are travelling. We make four lakh kilometres every day. That is the strength of Indian Oil. 

And regarding crude, I can tell you one tanker, be it VLCC, it's getting unloaded every day either at Mundra, Panipat or Kandla. So that is the strength of Indian Oil that we are spread all over and I think it's only getting better by the day, by more and more technology coming in. We are able to really cut down on the logistics cost because that is one cost we really want to optimise and bring down always. 

Is there any illustration that you can share with us? I mean something that you are specifically working on in the context of logistics and supply chain, which in your mind maybe, let's say if you look ahead, and I'm going to come to some look ahead questions in a moment, could maybe dramatically change either costs or just improve the efficiency of the system. 

Normally we have a system in the oil companies of sharing products between the oil companies that is called hospitality arrangements. For example, suppose in Panipat Indian Oil has got a very strong presence. Other companies don't have a presence there. So cutting down the logistics cost is not just for Indian Oil, I'm talking for a country because I am a government company. So we have a very strong hospitality arrangement between all the oil companies. 

At Panipat I share the products with HPC, BPC, maybe in Vizag, where HPC is very strong, I take products from them. So the essential point is I should be able to give the benefit to the consumer, so that I have the least cost at the retail outlet or at whatever depot and terminal. So that way that synergy is built up among the oil companies. It's not only the OMCs, even with the private companies, we have a big synergy in the logistics model so that eventually the customer gains. 

So let me ask you a little bit about innovation and the startup ecosystem and how is that integrating with you? And that's something that you're going to be talking about at the India Energy week as well. 

Actually the startup ecosystem, we have a very strong base for a startup model which our R&D is driving. We are encouraging young students to be a part of the startup scheme of Indian Oil. And I think we have already disbursed around 25 to 30 crores for the startup ecosystem. And one good thing is that we are not just linked to the startup, which is only linked to my business. We are going beyond business.

For example, we have gone into the medical arena where we have learned how to measure the blood haemoglobin content with a non-invasive type to detect TB. It's not only about oil. So we are investing in these startups also, which have directly no link to the oil and gas sector, but which are having overall benefit to the people of the country. I think that is one good point of Indian Oil, that we are not restricting ourselves only to the business, but this beyond business activities also plays a very important role for us in the days and years to come.  

What are the problems that you're seeking to solve or you would like to see solved by an innovation team or an innovation ecosystem?

One problem which probably the world is facing is the energy storage systems coming of age, [because] we are investing heavily in renewables. But renewables can only help to bring down the oil imports. Eventually you're looking at the reduction in oil imports. Today we have about 87% imported crude oil. 

Unless imports come down, the benefit really doesn't happen and imports will only come when we have a very strong storage system. So we are trying to encourage the energy storage system ecosystem in a big way, so that whatever energy we have from the sun and the wind, which is there for a few hours in a day, at least, it gets stored up and we can use it in the off grid hours. 

You have about 240-250 megawatt of renewable within your system. Is it like a support function or standalone, like a power generation or an energy generation? 

Say whatever power I'm drawing from these places, I'm taking it to my retail outlets. So basically most of my retail outlets are in the green arena because they're taking green power. But this 250 watt that you said is extremely… We are not happy with this number. 

We are scaling up this in a very big way. In fact, with Indian Oil's vision of becoming net zero by 2046, we have got nearly ten gigawatt ambitions. And from this year onwards we'll be scaling up in a very big way our renewable portfolio, because we have a vision, a broader vision, that today we are about 1/9th energy supplier of the country. We want to be 1/8th…12.5% of the energy supplied to India should be from Indian Oil. That's our vision by 2050. And renewables obviously will play a very big role in making Indian Oil the number one energy supplier in the country. 

You're also doing a lot of work in biofuels. Can you tell us again from a vision and path perspective how this is building and scaling as we go ahead? 

Thank you for asking this question because biofuels are something that is very dear to not only me personally, but for the company. We firmly believe that unless biofuels play a big role, the dependence on imported fuels will continue to grow. And with biofuels, the main advantage is that it totally primes up the entire economy because one fourth of the GDP comes from the agricultural sector. Nearly half the employment is in the rural sector. 

So biofuel, be it the parali, which is the waste stubble, we have making ethanol from that. And we have put a world scale plant in Panipat for making bioethanol from the parali which used to be burnt. We are processing nearly two lakh tonnes of parali and we are making about four crore litres of ethanol every year. At the same time we are scaling up these plants all over the country. 

We have got a plan to set up 30 compressed biogas (CBG) plants all across the country. We are making CBG from agricultural waste, from municipal solid waste and from press mud of the sugar industries. So the biofuel ecosystem is being very seriously looked after by Indian Oil. 

And the best part is we have more than 1500 LoIs issued to the entrepreneurs and Indian Oil gives them the guarantee for takeoff of the product. That's a big relief for the entrepreneur when he sets up a plant for biogas or ethanol. 

The entire ecosystem will develop further. It has not developed so far, but I think there's a huge potential of nearly 5 million tonnes of gas biogas coming by 2030. And we, as the oil industry, including the Ministry of Petroleum and Natural Gas, really committed to taking this number forward. 

Biofuels obviously get blended or ethanol gets blended with petrol. And that I'm assuming has no impact on, let's say the combustibility and so on. But when it comes to gas, what is the application here and how will it go into engines or power engines? 

Today we have a brand called IndiGreen. We are selling compressed biogas from our retail outlets. So the automobile sector is using it today. In some places they are using CNG, that is compressed natural gas. And wherever this biogas is available, we are supplying this as IndiGreen. 

The calorific value of this particular gas is very high compared to CNG because the methane content is more in the range of 90% to 95%. So it's very, very good fuel. It helps in greenhouse gas emission also. And it is very, very popular. We have got a network of nearly 36,000 retail outlets. So any part of the country where we are able to get gas, we are able to supply it through our retail outlets under the brand name of IndiGreen. 

Also the government of India, I should mention, has given permission to inject this gas after it meets some minimum standards of purity in the natural gas grid. So I think the ecosystem is being cultivated. 

Let me take you back…you're setting up EV stations in petrol pumps. That's, let's say the retail connect point where you're actually saying, I'm going to supply you electricity instead of giving you fuel if you bring your EV car or two wheeler to my petrol pump. 

Now at the boardroom level, as you plan and look ahead, how are you distributing your resources and time in the way this is all coming together…let's say those EV charging stations versus ethanol blending versus traditional refining expansion and petrochemical growth. 

Basically what you are talking about is how Indian Oil is doing the resource allocation…we are very high into investing in the newer forms of energy. At the same time, they are not very capital intensive at this point of time.

We have set up a joint venture with a company for making aluminium air batteries, because aluminium is abundantly available in the country and away from lithium which again is the imported product. So now the trials are on and very shortly maybe a year or so later we'll be putting up the first aluminium air battery plant in the country because the automobile companies are already halfway through the trials and the results are very encouraging. 

That is one part. Secondly biogas, biofuels…we are investing in them also because we firmly believe that we have to demonstrate [or] make good solid examples for the entrepreneurs to follow. 

Then one big area is hydrogen. Green hydrogen. In fact Indian Oil is very close to awarding the first job of green hydrogen of 10 KTA at Panipat refinery...to encourage more demand, we have to now use green hydrogen in the refineries because unless the consumption goes up the cost doesn't come down. 

Today the cost is about three to four times that of grey hydrogen. So we are in the process of increasing the consumption by becoming consuming points in the refineries. The prime minister actually declared about green hydrogen mission from the ramparts of Red Fort on August 15 2021 and in just 25 months we have rolled out green hydrogen buses in NCR Delhi. 

Today already two are plying and by the end of this year 15 buses will be plying in Delhi and that green hydrogen is made from my R&D centre at Faridabad. 

And petrochemicals is one big area where we are investing. We want to take care of the volatility in the crude oil market by being heavily into petrochemicals. So new forms of energy, petrochemicals, logistics. I'm investing because I need to be a very good supplier, the least cost, and of course core business. 

Right. Let me ask you about green hydrogen, since you mentioned it. How are you seeing that landscape? Let's say a steel plant today is a potential consumer of hydrogen. So between generating captively, generating for mobility, which you've just said as a test case, versus the big users of green hydrogen, what's your sense as you look ahead? 

We firmly believe that the big users have to come in first. So if you see the consumption of hydrogen, maximum goes in the refining sector for the desulfurization of the fuels, then comes the fertiliser sector, then comes the steel sector. So our intent is that all my refineries, we will be having 50% of the hydrogen consumption of green hydrogen by 2030. We are putting up plants all over the country in all my refineries. 

The other oil companies are also in the same vein. And once we are able to do that, I think the other industries also will get activated and the consumption in industries has to go up for the cost to come down. Only then hydrogen mobility will gain traction. 

So this conversation is in the context of the India Energy Week, which is going to happen in February, which obviously the idea is to bring together people to talk about some of the issues that you've already talked about. You've talked about net zero, you've talked about energy security, you've talked about biofuels, you've talked about future proofing, the business model for petrochemicals and maybe bringing it all together in some ways is the innovation ecosystem, because that's really the future. What are the areas that you would like to focus most on, particularly going into 2024-25? 

I'm very keenly looking forward to the India Energy Week..fundamentally because of the new forms of energy today, let me tell you, nobody has the answer today because nobody has got a definitive answer on what the future will be like on the new forms of energy. 

I think we are all learning. So it will be a great help to get to learn from the other oil majors or the other companies because it's not only the oil companies attending the IEW but all the energy companies, all the startup ecosystem is there. We would like to collaborate with them on what more we can do to make the transition more effective. 

For example,  we are keenly looking for electrolyzer manufacturing tie ups…we are looking for collaborations which will help us to grow as a company, which will help us to be more reliant in our country because we just don't want to be buyers of technology. 

Indian Oil is looking at an ecosystem where we manufacture that in our country and supply that battery storage. I think all these ecosystems which are still developing and at a nascent stage all over the country, all over the world I should say we are looking at collaborations of that. 

We have got a world class R&D centre at Faridabad. It's a 60 acre complex and we are replicating that at a cost of 3000 crores just 7 km away from the existing complex. We are doing great research there. Fundamentally it was set up for manufacture and supply for lubricating oils. But now we have shifted ourselves to making more renewable energies and other pathways to make green hydrogen. So I think I would like to collaborate for R&D on what more we can do because today is the age of collaboration. No more can we work in isolation. 

So I think India Energy Week is the right forum, it's the right place for us to collaborate for doing something big because time is running out as we all know. 

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