A slew of articles on how India is playing catch-up to China for securing energy supplies got me thinking ( see http://bit.ly/dkGodA and http://bit.ly/cphlRj ). And the thought was proceeded by some amount of research on the overall Indian strategy for ensuring energy supplies, primarily fossil energy supplies.
The total primary energy supply in India has grown at a compound rate of around 3.4 per cent since independence to reach 537.7Mtoe (million tonnes of oil equivalent) in the year 2005 (IEA 2007). While commercial primary energy grew at 5.3 per cent over the period, non-commercial energy grew at only 1.6 per cent, which is a reflection of industrialisation.
Let’s look at the energy consumption picture slightly differently: India country needs energy primarily for electricity, transportation and for industrial and domestic heating. Transportation fuels are currently primarily diesel and gasoline, electricity is mainly produced from coal, and to some extent from natural gas, large hydro power and nuclear energy. Industrial and domestic heating and cooling uses coal predominantly and to some extent, biomass. On all these three fronts, India faces shortages. On electricity, India’s peak power shortages are projected to worsen from a 17 per cent peak deficit in 2009 (shortfall of 23 gigawatts of peak supply) to close to a 25 per cent peak deficit by 2015 and a resultant shortfall of more than 60 GW of peak supply. On coal, our domestic production is short of our demand, even though we have large reserves of coal. On natural gas, our imports have been continuously increasing, even though the country has been successful in identifying rich natural gas deposits in the last few years.
The following is a summary of the International Energy Agency forecasts in its World Energy Outlook for India for 2030: ( Source: http://eai.in/blog/2009/03/india-energy-outlook-to-2030-iea.html )
- India’s primary energy demand will more than double by 2030, growing an average 3.6 percent every year.
- India will become the third largest net importer of oil before 2025 after the United States and China.
- Net oil imports will rise to 6 million barrels per day in 2030.
- Electricity generation capacity, most of it coal fired, will more than treble from 2005 to 2030.
- About 96 percent of the population will have access to electricity in 2030 from 62 % in 2005.
- Coal imports will increase almost seven-fold, accounting for 28% of India’s total coal needs in 2030 from 12% in 2005. (Wow! This for a country which has one of the largest reserves of coal in the world!)
The above data make it abundantly clear that India needs to do something, and fast, in order to get its energy supply chain in order.
Let’s look at what India is doing for the three main inputs – coal, oil and natural gas.
For a country that is supposed to have coal for the next 200 years at current consumption rates (it has about 100 billion T of proven reserves), it is indeed surprising that the coal industry would be acquiring coal assets worldwide. But that precisely is what’s happening. Coal India for instance has been acquiring coking and non-coking coal blocks in Indonesia and Mozambique in the last few years. The current consumption of coal is about 600 million T per year. Here’s an interesting white paper on India’s coal sector – http://bit.ly/cy8I0R . For the past three years, India has imported as much coal as is possible, limited more by lack of port capacity than international prices. In the year 2009-10, it imported about 60 million T and this number is only expected to increase – it is expected to hit 100 million T within the next three years. What’s the main reason for us to import coal when we have adequate reserves? Simply put, increased coal production will not come cheaply. The estimated investment need outlined in Vision Coal 2025 is US$ 28-30 billion to enhance production capacity to over 1 billion T /year. The actual investments that have been put in so far have been much less than this required amount.
India’s natural gas demand is expected to nearly double to 320 million standard cubic meters per day by 2015, global consultancy firm McKinsey said in a study recently. The company said the current demand of 166 mmscmd (million cu meter per day) made up of nearly 132 mmscmd supplies from domestic fields and the rest from imported LNG – is likely to rise to at least a minimum of 230 mmscmd and a maximum of 320 mmscmd by 2015. The Hydrocarbon Vision 2025 envisages increasing the proportion of natural gas in total energy consumption from 8% now to 20% by 2025. To manage this impending growth in the natural gas industry, the industry will require investments of around $40 billion to $50 billion across the value chain. With these investments and demand growth, the industry revenue pool could double to $50 billion by 2015 from $25 billion today.
This is obviously where India faces a steep problem. Our country has little oil by itself. The country consumed 3 million barrels per day in 2009, up from about 1.2 million barrels per day in 1990. The production has however increased relatively less – from 0.7 million barrels per day in 1990 to about 1 million barrels per day in 2009. (Source: EIA – Govt of USA). The country thus imports about 70% of its oil, the main sources being S Arabia ( 23%), Iran (17%), Nigeria, Iraq, Kuwait & UAE (about 10% each). These numbers will illustrate why India is ever careful when it comes to criticising whatever is happening in the middle east (and there is always a lot happening out there that is worthy of criticism!). The recent findings of oil in KG Basin by Reliance and in Rajasthan by Cairn Energy are likely to add significantly to domestic production. (Cairn Energy estimates that it will be able to achieve peak production from its Rajasthan fields of about 0.24 million barrels per day in 2011 – http://bit.ly/bt5UVn ).
- In natural gas, India imports about 15% of its total consumption, but the imports could increase with the fast growth of industrialization
- For coal, India imports a little over 10% of its requirements, and this again is likely to increase steeply over the next five years with production unable to keep pace with increase in demand
- In oil, while India has been pleasantly surprised by the recent oil finds in Rajasthan, it will predominantly (over 60%) rely on outside countries for oil for the foreseeable future.
So, what is India’s strategies to ensure that its imports of oil, coal and natural gas are secure, given that geopolitical uncertainties can seriously jeopardise such security? (One needs to only look at the troubles many European countries faced when Russia decided to cut off gas supplies to them, possibly to show that they can still be a bully worth fearing).
- Strengthen Ties with Existing Sources – The most obvious strategy is to make sure that the ties with Middle East are actively maintained. Well, there is little doubt that the policies of many Middle East countries are unacceptable to India (Iranian nukes for instance), but that is realpolitik for you.
- Diversify Sources – India is buying up stakes in oil and natural gas fields worldwide, and is also working overtime to please many countries that have rich deposits of fossil fuels. For instance, India has offered to help Nigeria to build infrastructure, especially power plants, emulating China’s strategy to secure access to oil and gas blocks in energy-rich Africa. India is also actively scouting deals in countries other than Middle East and Africa as well. Recently, Oil & Natural Gas Corp., India’s biggest energy explorer, expressed interest to buy oil-sands assets in Canada, according to latest news ( http://bit.ly/9EFMWB ).
- More Support from Domestic Supplies – The country is trying hard to ensure that the domestic supplies can support it more than what it does right now. It is doing this by increasing the investments (though not to the extent that is required) and by easing the the earlier restrictive policies for private sector investments (For instance, the NELP – New Exploration Licensing Policy – has allowed private players to participate in the exploration of oil and gas fields).
Of the above three, the second (Intensifying Efforts to Diversify Sources) is probably getting the most attention as we read day after day how ONGC Videsh is acquiring this oil asset or how our petroleum minister has had a newfound interest in visiting some African countries.
I guess the smartest long term strategy is to invest heavily in renewables, but then that is long term. In the short and medium term, we have to be more of actioneries than visioneries when it comes to fuel. Call it Realfuelitik.
Energy Strategies in China, India and Major Countries’ Views – http://bit.ly/cfs1ID
The Future of India’s Energy Security – http://bit.ly/bzisdV
The Oil and Gas Sector Overview in India 2009 – http://bit.ly/jTMZX