Will Mukesh Ambani's green turn alter the Indian oil and gas sector?
Can it prompt State refiners to follow in its footsteps?In the last five years, as the climate consciousness has spiked and the global oil industry faces rocky demand prospects along with heightened price volatility, Indian refiners rarely betrayed anxiety, smug in the belief that oil demand was unlikely to dwindle in the country for decades to come.Officials took great pride in citing market outlooks by international agencies that projected India as one of the biggest contributors to future oil demand growth, even if it involved increasing import dependence. Bullish Indian refiners have been adding significant capacity, even as global oil majors plan reduction.The former aim to expand capacity by 80% to 439 million tonnes a year by 2030, according to a three-year-old official report based on firm plans by companies. (This also included a 45% jump in RILs capacity, the fate of which is now unclear). Last November, right in the middle of the pandemic, Narendra Modi said India would nearly double its refining capacity in five years.Refiners have also expanded their fuel delivery network by nearly 40% in the last five years, and are adding thousands of more pumps. In short, while the world was thinking of ways to bid a farewell to fossil fuel , we were just stoking our addiction to oil.Amid such domestic optimism, RILs green plans may have come as a spoiler. When Ambani told shareholders that RIL was placing a $10 billion bet on the energy of the future, it would have shaken several assumptions and triggered rethinks in many boardrooms and officialdom.The first sign of RIL losing interest in traditional fuels appeared two years ago when the company said its refining complex in Jamnagar , the world's largest, would eventually produce only jet fuel and petrochemicals, eliminating outputs like petrol and diesel in sync with the global evolution of e-mobility.Last week, Ambani spoke of RILs plan to set up 100 GW of solar plants, and giga factories to produce solar photovoltaic modules, batteries, fuel cells and electrolysers for green hydrogen, unveiling the companys path to the future. The plan is important in another way as it boosts Indias control over the new energy value chains, especially at a time emerging global rivalries have left nations hankering for more reliable supply chains.State refiners, too, have ventured into renewable energy (RE), charging stations and green hydrogen. But their plans appear too timid, compared to RILs ambition. While Ambani appears to be bidding to build the future, State firms seem like waiting for the future to happen before they respond.There is, however, a strong counterview to the growing consensus on pushing oil companies into the green energy business. There is a whole clamour of forcing profitable oil companies into the electricity sector that has several legacy issues and offers limited returns. Why should an oil company go into a sector where they can contribute little by way of competence? asked an oil industry executive.State oil companies were formed with the specific purpose of supplying oil products to Indian consumers. If in the future, oil demand dries up and the business becomes unviable, let these companies be dissolved and cash returned to shareholders.Regardless of the managements views, shareholders and lenders are getting increasingly jittery about fossil fuel companies, globally. ExxonMobil, once the star of the US stock market, faces attacks over its unflinching loyalty to fossil fuel. Its shares have underperformed for years, encouraging a tiny activist hedge fund to organise a rare shareholder revolt last month to capture three board seats against the wishes of the management.Such a revolt is highly unlikely for Indian oil companies, as they are controlled by either GoI or families. But a weak show by State refiners shares, compared to the roaring rise of RIL, also points to the shifting preferences of investors who seem sanguine about RILs diversification into telecom, technology and retail.Placing big bets on new businesses where policies and technologies are rapidly evolving is not easy. And there are instances globally of companies running ahead of society and the demand curve, resulting in executives receiving blame for misallocation of capital. But with the strong winds of climate change sweeping the globe, it would be worse for the companies to drive blind into the future.