Energy Market Update: India, OPEC and Renewables

Over the past decade, China has dominated the discussion on economic growth, but that conversation is changing. While the Chinese economy continues to develop, the pace is slowing. And as a result, another emerging market — India — is preparing to take center stage.

According to the International Monetary Fund’s World Economic Outlook, India’s gross domestic product is increasing faster than virtually any other country and, over the next five years, the gap is expected to widen. This will have a profound impact on all sectors of the global economy, but will perhaps be most pronounced when it come to energy. As a leader in areas ranging from crude demand and coal consumption to solar and wind generation targets, there are few energy markets not affected by India’s emergence.

While these long-term expectations can be a bit daunting, it’s often most useful to dive into the details of how this economic explosion is unfolding. Two areas of India’s energy market stand out because of the way they are guiding and will continue to guide crude oil and renewable energy. 

Starting with the former, India has rapidly become the world’s most coveted market among oil exporters. Of course, any discussion of exporters tends to make its way to the world’s favorite cartel — the Organization of the Petroleum Exporting Countries.

Better known as OPEC.

Heading into their June meeting, the members of OPEC were the subject of endless speculation. Politicians, economists and amateur experts alike lined up to opine on whether the group was prepared to cut production and boost global prices. As it turned out, OPEC was either unable or unwilling to act. While the “why” is likely the result of the relationship between Gulf States and Iran, it could be argued that India played a key role. No, India’s not applying for membership. But the country is set to take in OPEC crude at record rates.

This is important because, broadly speaking, it’s not the easiest era to be crude exporter. Oil demand in the European Union has been falling for years. In the U.S., recent growth is overshadowed by long-term decline. And in China, growth rates have stalled. In that context, India — where crude demand is expected to surge for decades — stands out as the crown jewel of crude markets. So OPEC’s members have battled to secure a foothold. That means boosting production and trimming prices for India, which makes a coordinated cut among producers less than likely.

Sure, the rift between Saudi Arabia and Iran is still the main reason OPEC isn’t the market driver it once was. However, there’s much more than politics at play. In reality, grabbing Indian market share is a significant driver. Don’t be surprised if the next attempt at OPEC coordination comes after the cartel’s exports to India appear to stabilize. That’s not likely to happen this year and neither is a move by OPEC to turn off the taps.

As impressive as India may be in terms of escalating demand for petroleum products, the country’s renewable energy targets may boast the greatest long-term impact. While India’s carbon emissions aren’t going to decline anytime soon, it’s not waiting for the economy to peak before pursuing a greener grid. Under the leadership of Prime Minister Narendra Modi, India has set a target of reaching 175 gigawatts (GW) of renewable energy capacity by 2022 and seeks to fulfill 40 percent of the country’s energy demand with non-fossil fuels within the next fifteen years.

And while announcing ambitious targets is the easy part for any body, India is already taking swift action that indicates its goals and commitment are real.  The current administration, for example, has issued bonds to raise more than $40 billion — money earmarked for a range of sustainability and renewable energy projects. (The overall spend required to meet the country’s targets is expected to eclipse the $200-billion mark.)

By December of this year, the money raised should cross $70 billion, as investment pours into solar and wind developments throughout the country. Even though it’s a massive spending effort for an emerging economy, India is ahead of schedule.

At the same time, it will take more than bond issuances to make 175 GW of clean energy a reality. While the progress to date indicates the ambitious goal may prove more realistic than critics initially estimated, it remains far from certain. Nonetheless, both in terms of renewable energy and crude demand, India’s status as a global energy power is set and the cement is drying.

It’s is already moving oil prices, propelling renewable generation development and charting the future of carbon emissions.

What remains to be seen is how far the country’s influence will reach.