How the India-Saudi Arabia energy agreement can alter the global paradigm of energy demand and supply

When Saudi Arabia—the world’s second-largest crude oil producer—inks a comprehensive energy agreement with the world’s third-largest energy consumer, everyone is bound to take notice.

A Memorandum of Understanding (MoU) signed between the two countries recently is expected to enhance co-operation between them in the areas of renewable energy, energy efficiency, hydrogen, electricity and grid interconnections, petroleum, natural gas, strategic petroleum reserves and energy security. A joint statement released by them stated that energy cooperation is an important pillar of the strategic partnership between the two countries. “The two sides… stressed the importance of supporting the stability of the world’s oil markets by encouraging dialogue and cooperation between producing and consuming countries,” it added.

India has set a target to achieve 5 million tonnes of green hydrogen production every year, along with adding 125 gigawatts of renewable energy capacity by 2030 under the National Green Hydrogen Mission. It is against that backdrop that the MoU with Saudi Arabia—which has a sovereign wealth fund with assets under management of about $700 billion—is expected to encourage “bilateral investment in the field of renewable energy, electricity, hydrogen and storage, and oil and gas”.

“This is a clear path toward meeting our energy security goals by not restricting ourselves to just one source of funding,” says Rajashree Murkute, Senior Director and Head of Infrastructure Ratings at CareEdge Ratings.

Saudi Arabia has also been trying to diversify away from oil by focussing on developing its economy on the back of investing and encouraging foreign investments in sectors such as renewable energy, digital economy and tourism, among others, as per its Vision 2030 plan.

But while the opportunity exists for both the countries to collaborate on a massive scale, they also need to move quickly on creating robust domestic ecosystems, and significantly reduce the cost of production of green energy by leveraging new and emerging technologies.

@manishpant22