The Fuel Debate

“Should I go for biofuel?” asked fleet-owning transporter, Dheeraj Bhatia, from Palwal, Haryana, a day after Prime Minister Narendra Modi inaugurated GatiShakti, promoting multimodal connectivity.

But, of course, it could have been any other day. With oil marketing companies retailing diesel at Rs.100 per liter, transporters are beginning to examine alternate fuels to sustain their business. A hard decision no transporter can postpone definitely.

After all, fuel cost forms almost 50% of their operational cost. Moreover, the vast price difference between petrol and diesel has evaporated long ago. And the government is unlikely to concede any ground on fuel pricing. Brent Crude was quoting at US$80 a barrel, and speculating over the future trajectory of oil price is meaningless.

Nitin Gadkari, Minister of Road Transport & Highways, has been canvassing for alternate fuel since he assumed charge in June 2014. Significantly, he is one of the ministerial colleagues whom the Prime Minister has decided not to disturb from this crucial portfolio. Coming from sugarcane-rich Maharashtra, he is aware of the potential of molasses conversion into biodiesel.

Added to that is India’s commitment to GHG emission norms. The Net-zero goal is ambitious, but the path will be arduous. In a significant move, the GST on biodiesel has been reduced to 5% from 12% recently to incentivize blending by oil marketing companies. However, the easy availability of biodiesel is still a challenge.

Until 2017, biodiesel was sold directly to bulk consumers such as Railways and State Road Transport Corporations. Since then, direct sale of B100 or biodiesel has been made available for all. Imported palm stearin oil is used as feedstock and of late, used cooking oil (UCO) as an import substitution item is in vogue. Today, less than one percent of biodiesel goes for blending, whereas the target is set at 5% by 2030 for diesel blending and 20% for gasoline or petrol for the same period.

For a change, look at the macro picture of the global energy scenario. The International Energy Agency (IEA) predicts that by 2050, the global oil demand will shrink by a third from the current level of 100 million barrels a day. Assuming the global economy accelerating at a nominal rate of 2–3% per annum, where will the required energy come from? Alternate fuel resources: electricity, wind, solar, hydro, etc., to achieve the net zero-emission goals by 2050.

The Organization of the Petroleum Exporting Countries (OPEC), on the contrary, paints a different picture. OPEC predicts that the global oil demand will peak at 108 million barrels/day by 2045, thus countering the IEA projections. Simply put, OPEC sees an increase in oil demand.

OPEC’s World Oil Outlook report released recently does not mince words. It says, “Total primary energy demand is set to expand by a robust 28% in the period to 2045. As a result, all forms of energy will be needed to support the post-pandemic recovery in a sustainable way, balancing the needs of people in relation to their social welfare, the economy, and the environment.

‘Other renewables’ — combining mainly solar, wind, and geothermal energy — see the largest growth in both absolute and percentage terms, leading to a share over 10% by 2045. Gas witnesses the second-largest increase in absolute terms. Oil is expected to retain the largest share of the energy mix throughout the outlook period, accounting for just over a 28% share in 2045.”

According to OPEC projection, barring coal, given its higher emission quotient, other fuels will witness growth. Meanwhile, OPEC turns the spotlight on India’s fuel needs. “India is expected to be the largest contributor to incremental demand, adding 6.5 mb/d between 2020 and 2045,” adds the Report.

As far as transportation is concerned, OPEC points out that “the Oil demand in road transportation will continue to dominate the sectoral breakdown, increasing by 6.3 mb/d over the forecast period, with the total vehicle fleet (passenger and commercial vehicles) set to expand by over 1.1 billion by 2045 to around 2.6 billion. The long-term share of alternative fueled vehicles in the total fleet is projected to reach a level of around 24% in 2045, but conventional vehicles remain dominant.”

Whose predictions are accurate by 2045 is difficult to judge today. But, the world, including India, is moving towards alternate fuel with all the seriousness the situation demands. However, the pace differs, and it would be tough to judge how much dependence on non-renewable oil provided by OPEC would come down by the target date.

OPEC is hoping and betting that its members are unlikely to lose their control over oil supply to retain the price control and not lose out much to meet their domestic growth needs. Oil is their passport to prosperity for long, and losing that calling card would be unacceptable to them.

It is a tug of war between oil producers/exporters on the one side and oil consumers comprising the entire world almost on the other. The faster pace of development and adoption of alternate fuel would impact the market price of OPEC’s golden weapon. There is no clear clue as to how soon this would transpire. It is anyone’s guess. Therefore, the likes of Dheeraj Bhatia have to seriously explore the conversion of a few vehicles in their fleet to try out the economics of using alternate fuel: biofuel such as ethanol on a trial basis to take a final call.

OPEC’s golden product would never go out of circulation. But, yes, its importance for the global economy may be dented. Another oil crisis is something no nation desires. Manufacturers of passenger and commercial vehicles across the globe are seized with the looming crisis on the horizon: climate warming and their dubious contribution in this direction. They are eager to remove any stigma attached via the gasoline-driven vehicles and escape from the shareholder activism gaining currency; in this regard, their options are limited: making climate-friendly vehicles is one such escape route. They have cottoned on to this.

Meanwhile, all the noise about bringing fuel under the GST regime will fetch no long-term remedy. The permanent solution lies in switching over to alternate fuel. The chances of the government acceding to the demand of quarterly, instead of almost daily, revision of fuel price based on global oil price fluctuation is bleak. Even the doomsday prediction of inflationary pressure that may affect the ruling party’s political fortunes soon may not have an adequate heft.

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