Indias global quest for energy security

Indias global quest for energy security

As India looks set to increase its GDP fivefold, to about $10 trillion, by 2040, it is axiomatic that the country's energy demand will rise in tandem.

India recently took a small first step towards ensuring its energy security by commissioning three underground storage units of the Strategic Petroleum Reserve Project with a combined capacity of 5.33 million metric tonnes of crude. But these units, located deep under the bowels of the earth at Vishakhapatnam, Mangalore and Pudur have a capacity to store only 13 days of India's requirements against the International Energy Agency (IEA) recommendation of 90 days.

India's well regarded oil minister, Dharmendra Pradhan, is planning to augment these strategic oil reserves by constructing a further 12.5 MMT of storage capacity under Phase 2 of this project. But, as I said at the beginning, this is only a small step toward ensuring India's energy security. The country has been growing at an average of about 7.5 per cent per annum over the last decade. The primary driver of growth - the demand for energy - has, thus, grown at about 6.5 per cent over this period. Now, there's a very real opportunity for India to increase its GDP five-fold, to about $10 trillion, by 2040.

It is axiomatic, then, that the country's energy demand will rise in tandem. Given these projections - and the turmoil in the Middle East, the world's main source of crude oil and gas - India has to focus on ensuring its energy pipeline and supplies are secure.

To do this, India will have to guarantee the so-called three A's of energy security - availability, accessibility and affordability. Further, given India's fast growth rate and future aspirations, it should come as no surprise that primary energy consumption in India has grown at a CAGR of 5.3 per cent since 2010. According to studies by the International Energy Agency, BP Statistical Review 2015 and US Energy Information Administration, India's energy basket in 2014 was dominated by coal (56.5 per cent), followed by oil (28.3 per cent) and natural gas (7.1 per cent).

The rest of India's energy needs (about 8 per cent) were provided by hydro power, renewable energy such as wind and solar power and nuclear energy. The same studies project India's energy basket in 2035 to include coal (42 per cent), oil (24 per cent) and gas (11 per cent). Encouragingly, a little less than a quarter of its energy needs, or 23 per cent, will then come from nuclear and renewable energy and solid biomass and waste. This change in consumption pattern will definitely improve India's energy security matrix, but given that the combined share of oil and gas will remain unchanged at about 35 per cent remains a cause of concern.

At present, India imports 78.9 per cent of its oil requirements and 42.2 per cent of its gas needs, mostly from the Middle East, Nigeria and Russia. These supplies, from some of the most politically volatile and unstable regions in the world, are susceptible to disruptions, which could have debilitating consequences for the Indian economy. For example, what would happen if the ISIS or other rebel groups inimical to India were to come to power in a large supplier state in the Middle East Or, what would happen if the current turmoil in the Middle East were to come to a full boil These nightmare scenarios are not inconceivable; so India has to be prepared should they come to be.

The Narendra Modi government has been quite vocal and proactive in trying to ensure energy security. OVL, the foreign investment arm of India's public sector oil explorer, has invested billions of dollars to pick up oil and gas assets in Siberia. Then, India and Russia are studying the construction of a gas pipeline to transport Russian gas from Siberia to India, over 2,800-3,700 miles. This mega infrastructure project, with an estimated cost of about $25 billion, kick-started with a memorandum of understanding being signed by India's state-run Engineers India Ltd and Russia's Gazprom during Russian President Vladimir Putin's visit to Goa for the India-Russia Annual Summit on sidelines of the 8th BRICS Summit in October 2016.

If this project materialises, it will provide some succour to India's policy planners especially as domestic production of oil and gas hasn't matched expectations, primarily because previous governments have not invested sufficiently in upstream activities and choked largescale investments in exploration and extraction in red tape and laborious procedures. Since coming the power in 2014, the Narendra Modi government has been making efforts to shore up both private (foreign and domestic) as well as public investments in this area. Speaking to 'India Global Business' sister publication, 'India Investment Journal', Pradhan said: “In line with the Indian government's aim to reduce import dependency on oil and gas by 10 per cent by 2022, India is offering 46 Contract Areas consisting of 67 small fields across nine sedimentary basins for exploration and production of oil and gas in India under a liberalised policy regime.” He has launched the auction of 67 discovered small oil and gas fields and announced the contracts for all the acreages with reserves worth nearly $10.5 billion.

These blocks were discovered by state-owned ONGC and OIL but could not be developed due to their relatively small size or other technical, geographical and bureaucratic constraints. Then, the government is making all out efforts to reduce oil consumption by encouraging the use of ethanol and methanol. This should hopefully begin to bear fruit in the coming years. Simultaneously, the government could come out with a policy to encourage the Indian private sector to scout for oil and gas reserves across the world.

A few Indian conglomerates, such as Reliance and Videocon, did make an encouraging start in this respect a few years ago but the initial enthusiasm seems to have petered out. A big official push is the need of the hour to restart these efforts. Iran, Africa and South America could be potential hunting grounds for investments in fresh or existing oil and gas fields. Pradhan, meanwhile, has announced that the Modi government will strive not only to ensure energy security for the country but to deliver energy justice - defined as providing affordable access to cooking gas and power - to all citizens. Ensuring energy security is, thus, a work in progress. The government has begun well. And has created an environment where India can emerge as a major global stakeholder in this sector. The success of the three A's mentioned earlier will however ultimately depend on the three E's - execution, execution and execution.

Manoj Ladwa is Founder and CEO of India Inc. @manojladwa

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