Energy-Related Ventures Could Offer Opportunities
By Thomas Timlen
Reversing a February 2018 Indian Supreme Court order that halted mining activity in the state of Goa would understandably trigger talk of new opportunities for all stakeholders not only in that state, but perhaps more broadly across the country.
Under normal circumstances, jumping to such a conclusion would be expected. However the mining climate in India is somewhat complicated. Instead, other energy-related projects, such as the construction of underground rock caverns for crude oil storage, could offer more tangible opportunities for the project cargo sector.
Prior to the Supreme Court’s decision in February, other legislative measures going back to 2012 had already hampered mining activity in Goa. Some impediments hark further back to a concession system with Portuguese roots, still found in the Mines and Minerals Development Act of 1954. Later, in 1961, the mining concessions for exploration and exploitation previously having permanent status were converted into fixed-tenure leases that ended in 2007.
Can it get more complicated? Of course. In May the government approved the restructuring of the Indian Bureau of Mines to reform regulation of the mineral sector. What impact this move will have on mining activity remains to be seen.
Turning back to the developments of August this year, it has been said that if adopted, the legislative amendments will result in significant changes to legislation and the structure of India’s coal and ore mining industry, giving the sector and all related industries, including project cargo transport and mining equipment manufacturing, a powerful boost. However, questions remain on whether this will actually happen, and if so, when. And these are not the only questions.
Risk Of Underutilization
From April to June 2018, India saw a 19 percent increase of thermal and steam coal imports. Should domestic production increase significantly as a result of the passage of amended legislation, the resulting decline of demand for imports could leave ports operating below capacity, with similar underutilization of surrounding infrastructure. That would not bode well for development projects.
More recently, the Indian Ports Association issued statistics in October showing positive throughput at the country’s major ports from April to September 2018, increasing by 5.12 percent as compared with the same period in 2017. Shipments of thermal and steam coal contributed to the growth with increases of 11.34 percent on the same basis.
The prospect of increases to domestic coal production might have been seen as a means by which port throughput could be maintained as exports. However, with India ranked 23rd globally among coal exporting countries in 2017 with only 1 percent of the world’s total departing from its ports (as compared with the top ranking exporter Australia shipping 36 percent of the world’s coal) this outcome is far from likely. Should India boost coal production to reduce reliance on imports to meet the country’s energy needs, domestic production would only be distributed internally, leaving ports to manage only domestic coastal movements at best.Expanding India’s mining activity naturally leads to an assumption that there will be an increased demand for mining and construction equipment, the latter to be utilized at the mines and for improvements to the country’s infrastructure. However such assumptions overlook the reality of some mines. For example, although some reporting indicates that iron ore and coal mining in Goa has been banned since February 2018, others say that the problem stretches back to 2012. One recent legislation would reportedly lift that ban. The result would not necessarily lead to a flood of machinery headed for Goa, as the initial phase would simply involve reactivating the existing equipment put in limbo at Goa’s mines. For other Indian states, there might be little, if any, impact.
Ironically, despite holding the world’s fifth-largest coal reserves, India remains dependent on imports due to the demand for high quality coal used at its steel plants, while exports of domestically mined, poor-quality coal have declined.
Meanwhile another political initiative in Goa involves a resolution passed to put pressure on the State’s Chief Minister to negate India’s Supreme Court February 2018 ruling that put a halt to mining in Goa. The court’s decision followed allegations of illegal mining in the state, and in addition to leaving mines at a standstill, about 50,000 workers employed in the sector were left without jobs.
Opportunities Beyond Mining
While the prospects surrounding Goa’s mining activity, or the country’s, are difficult to predict, for the project cargo sector as well as heavy machinery and construction equipment players there are reasons for optimism, as the ore and coal mining sectors are not the only ones where the acquisition and delivery of heavy machinery may be needed.
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Initiatives are underway to boost the domestic petroleum and natural gas sectors, including the construction of massive underground rock storage caverns and associated facilities by Indian Strategic Petroleum Reserves Ltd. that could generate demand for several industrial stakeholders.
On Oct. 17, a road show promoting India’s Strategic Petroleum Reserves Program was launched by Shri Dharmendra Pradhan, India’s minister of petroleum and natural gas and skill development and entrepreneurship. The Strategic Petroleum Reserves Program is one of India’s key initiatives towards energy security, envisioning the creation of additional crude oil reserves facilities in a private/public partnership.
At the event Pradhan said that on the world’s energy landscape, India is the third-largest consumer of energy and the third-largest importer of crude oil. With the Indian economy growing rapidly, energy demand is forecasted to grow more than any other country in the next two decades. India has a very large requirement of petroleum fuels, and demand for petroleum products has increased at a compound annual growth rate of 5.5 percent from 2013 to 2017. As such, India’s domestic production will not be able to meet the increasing domestic demand of petroleum fuels and petrochemicals, leaving India dependent on imports for the foreseeable future.
Creation Of Reserves
One of the mitigation measures is to create enough strategic reserves within the country to store an adequate amount of crude oil. This will not only help to avoid disruption on the supply side, it will also help to reduce price volatility.“Having the objective to meet the energy security, the government of India formed Indian Strategic Petroleum Reserves Ltd., or ISPRL, a special purpose vehicle under the Ministry of Petroleum and Natural Gas,” Pradhan explained. “To further improve strategic reserves, the union cabinet granted approval for establishing additional 6.5 million tonnes of strategic petroleum reserve, which will be able to provide 12 extra days of supply. After a detailed study considering technical and commercial factors, two locations, Chandikhol in Odisha and Padur in Karnataka, have been selected as the optimum locations for these SPRs. These two SPRs will add strategic petroleum reserves of 12 days in addition to 10 days of reserves achieved in Phase I. Indian refiners maintain 65 days of crude storage, and when added to the storage planned and achieved by ISPRL, this takes the Indian crude storage tally to 87 days. This is very close to the storage of 90 days mandated by the International Energy Agency for member countries.”
On the issue of the second phase, Pradhan said that these are large investments requiring more than US$1.5 billion of capital, and the government plans to develop this under a PPP framework.
India has decided to keep the nation ahead in the quest for securing its vital crude oil buffer inventory by seeking to almost double the capacity of its underground storage caverns through the ambitious second phase of the program which seeks public/private partnerships in India’s emerging hydrocarbon sector. ISPRL has successfully completed and commissioned the first phase SPRs program.
Security Of Oil Supply
The government has found that underground storage of crude oil is more secure, safe, economical and environmentally friendly than conventional above-ground storage tanks. Many other developed countries have created crude oil reserves in different types of underground storage facilities.
ISPRL has built and will operate three crude oil storage facilities, constructed in underground rock caverns located on the East and West coasts of India. Crude oil from these caverns can be supplied to Indian refineries, either through pipelines, or through a combination of pipelines and ships. While part of the stored oil can be used for commercial purposes by oil companies, the major part will be reserved for strategic purposes.
In May the first cargo of crude oil arrived at ISPRL’s Mangalore oil storage facility. The cargo was loaded in Abu Dhabi and arrived following a six-day voyage.
Indian energy demand is forecast by the International Energy Agency to grow by more than any other country in the period to 2040, propelled by an economy that will grow to more than five-times its current size and by population growth that will make it the world’s most populous country. Indian energy consumption is expected to more than double by 2040, accounting for 25 percent of the rise in global energy, and the largest absolute growth in oil consumption.
With the potential opportunities associated with the expansion of India’s mining activity somewhat in doubt, the government’s backing of the strategic petroleum reserves program involving the creation of massive storage caverns and associated facilities looks like a safer bet for suppliers of project cargo transport and heavy construction equipment.
Thomas Timlen is a Singapore-based freelance researcher, writer and spokesperson with 28 years of experience addressing the regulatory and operational issues that impact all sectors of the maritime industry.
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