The future of the oil and gas industry is at a crossroads with an increasing focus on decarbonisation around the world. Is it the time to write an obituary for oil? Amrita Sen, co-founder and director of research of London-based research firm Energy Aspects, certainly does not think so. The world needs all forms of energy, she argued, to sustain economic growth. In an interview with Sambit Saha of The Telegraph, Sen blames Western government policies for focusing only on renewables. She urges devising a carbon tax on petroleum, focusing on carbon capture and decarbonising oil. She also raises alarm about depleting investment in the sector. An edited excerpt

There was an apprehension that oil could touch $150 a barrel if the Gaza conflict escalated in the Middle East. Almost a month into the war, how do you assess the situation?

If there is a flare-up in the Middle East, then of course the outside (limit) is $150 a barrel. But that is not our best case. We don’t think it will flare up. Every country wants to make sure it (oil price) is kept quiet. But the risk comes from miscalculations. If a Houthi missile strikes Saudi Arabia and SA reacts, then the price can go up a lot but definitely (it is) not our best case.

Assuming it does not flare up, where do you see crude oil in the near- to medium-term?

We had a price forecast of $90s a barrel. We said the fourth quarter would be $92, even when others were talking about $60-$70 a barrel. I think this is the range we will be in, between $90-$100 a barrel for Brent (next six months).

Is there a downside risk?

The downside risk comes from a recession. The US is slowing down, and Europe is in a recession. If that gains momentum, then that hurts the East, then there could be quite a lot of downside.

But it is now balanced with geopolitics?

Exactly. That’s why we are stuck right now. On the bearish side, we have the macro, on the bullish side, it is the geopolitics. That’s why we are at $90 a barrel.

Do you expect the Opec countries will continue with the squeeze on production?

I think Opec Plus will maintain its policy, for two reasons. In the short term, weakness or worries about the demand. They don’t want the inventories to build. They remember April 2020, when prices went negative. They don’t want a repeat of that. So they want to control the production — if there is a recession, it will not go to that.

On the flip side, if you look at the Western governments, they are focusing so much on renewables, poking the bears so to speak — we don’t need oil and gas — then it becomes a challenge. If producers are to be told that there will not be any need for oil and gas 20 years down the line, then the producers might as well maximise the revenues today, keeping production down, and getting a high price. I do think the policies of the Western governments on energy are wrong in many ways.

If you believe in economic growth, energy will be needed. Energy in all forms. I think the conversation should be, about how can they decarbonise it. Put a carbon tax, make it cleaner. Don’t say you will not need oil and gas. There is no point in having an EV if you fire it with coal (thermal power).

How do you decarbonise oil?

It is not hard but it is costly. People don’t like fossil fuels because of the amount of carbon it generates. You can capture that. Carbon capture is a verified technology and it is called CCS. With oil, the beauty is you can push it back into the earth because it gives enhanced oil recovery. It can be done at the wellhead. Lots of US companies are doing it, but it is expensive.

Ultimately, it all boils down to cost. One can incentivise it with a carbon tax. If you don’t do CCS, can’t sell the oil. But we cannot say, there is no need for oil and gas.

India, China, Asia, and Africa will continue to grow. What
we find is a double standard, that in the West, they ask India to reduce its carbon footprint. But per capita energy consumption here is much lower than in the West. About 15 per cent of the world’s population (the US and Europe) consume 40 per cent of the world’s energy. The West cannot just say, others need to reduce. They can do it too.

So you are saying it is not yet the time to write an epitaph on oil after all?

How many times have we written an obituary for coal, in the last 10 years?

And now it is back in Germany.

Exactly. That is my answer to you on oil. At the end of the day, energy is the backbone of economic growth. We need all forms of energy. We absolutely need renewables. But it can’t just be renewables. But the conversation has become polarised.

What strategy for energy would you prescribe for India?

It is a bit like China, the population base is growing and so is the economy. They need energy. Both rely heavily on coal because it is there, rather than oil and gas, which need to be imported. Probably, we (India) need a bit of a long-term strategy… lock into long-term deals with slightly lower prices may be a good idea or you can be exposed to the geopolitical swings.

Are you worried about the lack of investment in oil and gas?

Massively. Also in renewables. Suddenly renewable projects are also not taking off because interest rates have gone up. Are we going to fall short on energy going forward? That is a genuine concern.

But investors must get it, right?

They are kind of getting it. It is the government agencies that are not. I urge the Indian government to understand it. The IEA has now become a political institution. It says we don’t need oil and gas. No. It has to be inclusive. We need all forms of energy. Because
it says things like that, investors get worried as their shareholders question the decisions.

US sanction on Venezuela has been lifted. How do you view the impact?

The challenge with Venezuelan sanctions is, it is dependent on the Opposition being able to run. But the Supreme Court has already come out and cancelled the Opposition. So the US might have to remove it. But let’s see.

Remember, the US also has elections next year and it would want the prices to be down. Venezuela produces 700,000 barrels per day, not a lot. It could go up to a million BPD with a little bit of investment. But the infrastructure is dilapidated and requires billions of dollars of investment. Else, it will be a big struggle.

All of the oil Venezuela produces goes to China which is not paying for the oil, but this is a form of debt repayment. Now that sanctions are lifted, others can buy it. The US, and India will benefit. Somebody like Reliance would love to process Venezuelan oil because it is heavier and thus cheaper. So the refining margins in complex refineries in India will rise.