India, the second-most populous country on Earth, is steadily recovering from the COVID-induced economic slump, as the country’s oil demand is approaching pre-pandemic levels. As production and consumption accelerate again, oil and steel minister Dharmendra Pradhan has even speculated that the country’s oil demand could eventually double by 2040. These figures may be disheartening to those who are hoping for India to green shift it’s economy quickly. But a closer look reveals that increased demand – and consumption – of oil doesn’t necessarily contradict PM Narendra Modi’s determined push for India’s sustainable development based on low-carbon energy.
Indeed, Modi has set ambitious targets: by 2030, 60 percent of India’s total installed electricity generation capacity should be renewables, primarily solar and wind, and to a lesser extent, hydro. However, for India, these targets are not only daunting because of New Delhi’s need to strike a delicate balance between climate goals and economic priorities, but also because of the colossal price tag. According to preliminary estimates from the Observer Research Foundation, implementing carbon-saving and adaptation policies could require an eye-watering $2.5 trillion in investments between 2015-2030.
Need for finance
It should be evident that such immense sums of money cannot be generated through global investors alone, but that the government needs to find stable revenues from high-yield investment projects itself. Perhaps ironically, a project that fits the bill is the Vostok Oil project by Russian oil giant Rosneft. Located in the Russian Arctic, Vostok Oil commenced operations in November last year and is expected to be covering one percent of global oil demand by the end of the 2020s, meaning it’s likely to be tremendously lucrative.
The fact that the Modi government was quick to confirm an Indian stake in the venture in January 2020 shouldn’t be surprising, even amid scathing criticism by campaigners that doing so would be incompatible with India’s green transition. Environmental activists have particularly focused on Rosneft, its environmental record, and its intent to increase oil production as Vostok is gathering momentum. And India isn’t the only one to be criticized for its decision to invest in oil at this time, because British oil major BP, which holds a 20 percent stake in Rosneft, is being slammed for similar reasons.
BP too pursues a long-term plan to drastically slash its carbon emissions, envisioning to reach net-zero by 2050. Yet at a time when Rosneft CEO Igor Sechin is expanding the fossil fuel portfolio via Vostok, BP’s stake has been dubbed “kryptonite to environmental investors”. But such fearmongering is not only myopic, it’s missing an important point as well, namely that Rosneft’s financial importance for BP is what will ultimately allow the British to achieve their carbon reduction goals. As a matter of fact, Rosneft’s status can hardly be overstated. In 2019, BP earned dividends worth $785 million from the Rosneft stake and was able to record a $2.3 billion pre-tax profit from the investment alone. In other words, without Rosneft’s financial contribution, BP won’t be able to afford the billions of investments it has earmarked in the low-carbon sector.
The Rosneft-BP environmental pledge
Recent developments unfolding at the same time have dealt a blow against the campaigners’ derision. On February 4, Rosneft and BP revealed an extensive cooperation agreement that aims to support sustainability and reduce carbon emissions while identifying low-carbon opportunities, including carbon capture, utilization, and storage (CCUS). The agreement is in line with Rosneft’s pledge to cut greenhouse gas emissions by 20 million tons along with a 30 percent upstream emissions reduction and zero routine flaring, all by 2035.
Rosneft is also implementing two programs designed to reduce greenhouse gas emissions, the Investment Gas Programme and Energy Saving Programme, which are expected to save at least 8 million tons of CO2-equivalent until 2022. The company has invested in excess of $2 billion in the development of associated petroleum gas technologies, as a result of which Rosneft managed to avoid emissions in the amount of 3.1 million tons of CO2-equivalent.
Such innovations are of vital importance to new oil fields such as Vostok, where these and other cutting-edge technological innovations are being employed. In combination with process changes and adjustments like eliminating of flaring or installing vapor-recovery units to reduce fugitive emissions, these modern projects have a much lower overall carbon footprint than older coal and oil field projects.
Seeing the big picture
The insight to be derived from the factors described above – the Rosneft-BP deal and technological innovation – is that increasing production and revenues while reducing carbon emissions at the same time is very much within the realm of possibility. This is particularly important for India, given that New Delhi is pushing hard for greater use of renewables but can ill afford to ignore the revenues to be gained from fossil fuel projects such as Vostok.
And neither do Indian companies active in the oil sector, who Modi has pushed to invest in renewables for years and which are coming under ever-increasing pressure to foot the bill for India’s expanding solar capacity. Considering these pressures at the domestic front, the fact that major Indian industry players are getting closer to become actively involved in Vostok is only one step in a logical progression towards reduced emissions.
(Disclaimer: Devdiscourse’s journalists were not involved in the production of this article. The opinions expressed are the personal views of the author. The facts and opinions appearing in the article do not reflect the views of Devdiscourse and Devdiscourse does not claim any responsibility for the same.)