INDIA DEBATES ITS ENERGY SECURITY

[Vol 1/ Issue 1/ Dec 2014] [ISSN 2394-9295] Harshita Singh

Asstt. Prof.

Amity University, Noida (U.P) Email ID: hsingh5@amity.edu

ABSTRACT

Twenty First Century global realities have altered the concept of national security. While national security is a holistic concept, energy security is one of its major components.As far as India is concerned, energy security emanates from growing imbalance between the demand for energy and its supply from indigenous sources resulting in increased import dependence. The energy resources are limited and inadequate. According to the Basic Statistics on Indian Petroleum and Natural Gas,2001-2002, the proven reserve of crude oil is 732 million metric tons. The production is around 33 million metric tons, but the demand is around 107 million metric tons. Based on the present GDP growth rate the demand for crude oil will be 190million tons by 2011-12, which will result in 81% import dependence. With respect to natural gas, the demand will rise to 313 MMSCMD in 2010-12. The current demand is only 8% of the world average, which is likely to increase to20% by 2025 due to fuel substitution.

Need of the hour, therefore, is to acknowledge the important challenges to India‟s energy security, which are both internal and external in nature. Internally, India has a limited resource base, lacks adequate infrastructure and an integrated long term policy. The external challenge lies in getting a continuous supply of energy at reasonable prices as domestic production is low but the demand is high.

Keywords: National Security, Energy Security, Indian Petroleum and Natural Gas.

INTRODUCTION

With one of the world‘s fastest growing economies, energy security is one of India‘s overriding domestic concerns. India already faces a severe energy predicament. Our Prime Minister recently warned that the country has 10% gap between power supply and demand. Though India‘s economy is averaging over 8% growth in recent times, energy production is growing at a laggard 5% growth a year. Hence we have a gap of 3%. During peak hours, some regions saw the gap widen to 25%. Power he warned is the leading potential bottlenecks ‘for India‘s economic success. New Delhi‘s most recent review of energy policy says that if the economy merely maintains 8%growth by 2020, the country will need to increase its electricity production from its present 131,000 MW to as much as 900,000 MW. The World Energy Outlook Report published by International Energy Agency (IEA) projects that India‘s dependence on oil imports will grow to 91.6% by the year 2020. Studies have indicated that a sustained 5% rise in oil price over a year would slash India‘s GDP growth rate by 0.25% and raise inflation by 0.6%.

India is regarded as one of the highest energy sensitive economies in the world. In fact, energy intensity is a measure of energy required by an economy to produce one unit of GDP growth. As per the predictions of IEA, the energy intensity of the economy is substantially high. It is 2.88 times higher than that of any developed country. In practical terms, for producing the same quantity of output, the consumption of energy in India is almost three times than that of any developed country. In other words India consumes more oil per unit of output than mostother countries. The implications of these growing trends may be disastrous. The high level of energy consumption makes a country more vulnerable to economic shocks in addition to high oil prices create prohibitive economic costs in the medium term as it can erode the purchasing power and crowd outpublic resources into financing the mounting oil import bills. It will also affect the equilibrium of Balance of Payments (BoP). Global oil price fluctuations have a stagflation impact on the macro-economy of the oil importing country. It also slows the rate of economic growth, propels inflation and reduces economic output by acting as tax on consumption. The price shocks that accompany large disruptions in oil supply have a ripple effect throughout the economy. It gets reflected through a pure price effect and an economic effect. The price effect arises because petroleum products become more costly relative to other products and prices. On the other hand, with higher petroleum prices, incomes of individuals suffer a reduction in their purchasing power.

DEPENDENCE ON HYDROCARBONS

Coal will continue to fuel half of India‘s energy requirements, but consumption will increase fivefold by 2030 to over 2 billion metric tons annually. Oil figures will show a similar rise but, unlike coal, petroleum will almost be imported. Natural Gas, a sector long stunted by price controls and disinvestments, is expected to see a large expansion as market forces seep into this sector. In the coming decades two of India‘s greatest challenges will be how to grow while concurrently going for a worldwide push towards mitigating climate change and how to secure diversified sources of energy. Right now India‘s primary energy is not oil but coal. Coal accounts for 53% of India‘s energy consumption in ‘07 and the demands are growing dramatically. In ‘08 the production of coal was around 380 million tones. Over the next two decades the coal imports are projected to be tripled compared to the level of ‘07. The current reality in India is 44% of rural households amounting to 300 million people do not have access to electricity.

Another problem for India is the quality of coal available in the country. It has high ash content and there is lack of infrastructure in India to clean it. Coal is most polluting fuel in terms of GHG emissions and already it account for 65% of carbon dioxide emissions. In addition to carbon-dioxide, burning of coal produces black carbon. Black carbon is responsible for 1/5^thof observed global warming. Further, India‘s coal reserves are depleting fast. At the current usage rate India‘s reserve will be depleted in next 100 years. India cannot progress without burning coal but at the same time India will have to control its GHG emissions. The country will have to adopt clean coal technologies such as carbon capture sequestration—it is two step process where carbon-dioxide is captured and then it is pumped underground for safe storage. Right now this capturing part is underdeveloped and expensive. According to some estimates for India at least 20 billion dollars will be required in the next 25 years for development of clean coal technologies.

ENERGY MARKET OVER –REGULATED

A dizzying array of price controls, nationalized energy firms, cross-subsidies and taxes ensures a distorted and politicized energy sector. Natural Gas is being pushed towards liberalization by largest private Indian energy firm, Reliance Industries. This should eventually include the lifting of price controls on gas, paving the way to a huge infrastructure investment that a genuine gas market needs. A parliamentary bill to open the door to private coal firms has been waiting the right political opportunity for many years. Attempts to lift price controls on petroleum prices have floundered thanks to high international crude prices. However, reforms had helped ensure prices for industrial and commercial energy customers but still it is largely market based. A number of State Governments like West Bengal have shown that it is possible to make local power utilities profitable without raising electricity bills.

STRATEGY ADOPTED BY INDIA

India is moving towards a defacto market based energy security policy, similar to that practiced by US and most western countries. The strategy is that, as long as overall oil and gas supply exceeds the overall demand the market will ensure all customers are satisfied. India‘s Nationalized Oil Companies are so burdened with paying for domestic energy subsidies that they are in no position to purchase overseas energy assets in any significant degree. The Persian Gulf will remain India‘s primary source for both fuel and only a limited diversion to other places like Africa is possible. The Government is taking greater interest in the prospects of nuclear power in its future energy matrix. With Indo-US nuclear deal the P.M hopes that nuclear energy production will increase from around 35,000 MW to 60,000 MW in next 20 years. Even this will be only 5% to 10% of the projected energy demands. If the nuclear power is to play a major role, then the industry had to open up to the private sector. The other strategy for India is greater utilization of Natural Gas. India is fortunately placed closer to countries with huge gas reserves. The proposed gas pipeline like IPI, QPI, RKTAPI, MBI are extremely important for India both from the point of view of energy sector as well as for sustainable development. Switching over to a much more eco-friendly gas based energy use option will enable the country‘s economy to move away from high oil dependence. It will also be possible to fix gas prices and transportation tariff at predictable levels and not linked to highly fluctuating oil prices. The Government set upto provide energy security for the country by souring oil and gas from abroad. OVL is trying to bridge the gap between demand and supply in the country. It has established a strong foothold in hydrocarbon area spread over 15 properties in 13 countries (till 2010). In Oct 2005, OVL started getting crude oil from Sakhlain I in which India invested 2.77 million dollars. The total recoverable oil in Sakhlain I is 2.3 billion barrels and 1.71 trillion cubic feet of gas. OVL‘S share of production in Greater Nile Project in Sudan was started in 2003and is being refined at Mangalore refineries. OVL has a stake in Lay Tay gasfield in Vietnam as well as the Lad Do fields which started production in 2002.It has invested around 8 billion dollars outside India till now and recently CCEA authorized OVL to invest 8 million dollars in US energy major EXXON‘s Brazil project. After a series of setbacks in Aug ‘08, OVL managed to have couple of contracts in our favour but unfortunately we sign the contracts when the oil prices are on their peak and naturally these contracts over look the price today for eg. Imperial Energy Contract for 2.88 billion dollars.

Another great potential for India is the use of non­conventional energy sources. India‘s favorable location in tropical region as well as its geographical diversity ensures that there is scope for renewable energy utilization specially, solar, wind, tidal energy etc. Of these wind energy holds maximum immediate prospects because of comparatively small gestation period and smaller investment requirements.

NATIONAL SOLAR MISSION

Most important initiative by the Government in the field of non-conventional energy source is the launching of National Solar Mission. The potential amount of solar energy which can be extracted is estimated to be 13,000 MW based on the existing infrastructure alone. In this, India‘s tropical location is very helpful and states like Rajasthan and Gujarat has maximum potential. In ‘08 our Prime Minister announced the ambitious National Solar Mission to be implemented over the next decade. The first three years to be used to push and scale up the research to reduce the cost involved, increased domestic manufacturing and fund solar lightening with micro-finance. In the second phase, the concentration will be on the installation of solar water heaters in office buildings and large residences. In third phase, which India hopes will begin in 2017, solar energy is to achieve tariff parity with conventional power. Even if the plan does not fully adhere to this time table, increased solar energy should be an important addition to India‘s total energy output. The Clinton foundation is in talk with the Government to set up an integrated solar city (largest solar power project in Gujarat). Although a relatively diluted energy source, solar energy should be a component in helping India to quench its energy thirst in a way which is environmentally responsible.

AUGMENTING NATURAL GAS SUPPLY

There is huge, insatiate demand for natural gas. In addition to giving impetus for domestic production and acquisition of interest in fields abroad, efforts to import gas through pipelines and in the form of liquefied natural gas (LNG) from surplus countries were also made. Though the imports through pipeline are being pursued from sources in the east and west of the country, the LNG import project made significant progress with First Import Terminal at Dahej in Gujarat (5 million tons) to receive LNG from Qatar on course for commissioning by the first quarter of 2004. The project is promoted by BPCL, ONGC, GAIL (India) and IOC through Petronet LNG. Another important terminal has come up at Kochi (2.5million tons). A 2.5 MMT import terminal is constructed by Shell (India) at Hazara in Gujarat. It was operationalized in 2004. Thus the security of adequate supplies of natural gas is within sight together with significant discoveries of gas in India and acquisition of interests in fields like Sakhlain, Vietnam Project and a block in Myanmar

PROBLEMS IN INDIA’S ENERGY DIPLOMACY

The success of India‘s energy diplomacy has been limited because of two main factors. In more developed oil markets it has brought India into direct conflict with leading MNC‘s and the policies of Western Governments. We have made little progress in acquiring rights in Saudi Oil Industry though Saudi Arabia is the largest supplier of crude in India. Instead Indian companies are pursuing opportunities in the region of the margins of global energy markets. (Burma, Sudan, Libya, Iran, Russia etc) But in these markets OVL is facing a stiff competition from China‘s National Petroleum Corporation (CNPC), which is much larger and much more active. These competitive pressures have pushed the Indian companies further towards the margin like Equador, Ivory Coast etc.

Other problem which is faced in the Energy diplomacy in the domestic sector includes the large bureaucratic red tape surrounding Indian PSUs which is ultimately hampering the progress (we lost stake in Sudan and Angola). Successive Indian Governments have exploited PSUs energy companies to fulfill their political mandate and to ease on their fiscal difficulties. In recent years ONGC and IOC were forced to declare were high dividends and this has disappeared into public treasury.

NEED OF THE HOUR

A comprehensive policy change is needed. The domestic market should be opened up and multiple players should be encouraged for competition. There should be adoption of rational principles for energy pricing, establishment of credible energy pricing regulatory framework and decentralized mechanisms for energy conservation. The most important step to improve the energy security will be to diversify the sources. The diversification of sources involves mainly three processes: (a) to enhance exploration efforts within the country; (b) to pursue upstream investments overseas; and (c) to look for alternative sources.

ON EXPLORATION

In the field of exploration, India can learn an important lesson from China, which prefers to acquire what has already been developed, instead of exploring and then developing fields as pursued by Japan. One policy lacuna here is that foreign firms are not yet allowed to set up refineries. Given the highly vertically integrated nature of the industry, this constraint may dissuade all oil majors from India. However any such modification in policy should not lead to the emergence of the monopoly.

ON STRATEGIC TIES

India must intensify its options for the strategic tie up. The recent visit to India of the Venezuelan President and the assurance given by him seems quite significant. In order to reduce dependence on OPEC, India must give importance to Russia. Russia, after OPEC is the largest supplier of oil and this alternative source option needs to be explored in depth. Given the historical relationship between the two countries, there should not be any big problem except that other countries like the US and Japan too is negotiating with Russia to access that rich source. India and China must begin to diversify their supply of energy sources or start joint bidding of the projects.

ON STOCKPILING

Stockpiling or maintaining reserves protects against unexpected disruptions of supplies. The US has the largest stockpile and this makes them super power. But stockpile is not very feasible because any sharp fall in prices will cause huge losses to oil companies at the national level while stockpiling looks attractive, it has an opportunity cost of keeping precious foreign exchange locked in oil stocks.

Moreover, still, this is considered a small price to pay if energy is the main concern.

ON DEMAND SIDE

The demand side options can be divided into two categories— conservation in energy use and developing alternative energy sources. Alternatives to hydrocarbons like hybrid technology, fuel cell, bio diesel, advanced composites and light weight steel construction must be explored to create a viable option for sustainable growth. In nutshell, a combination of all measures at varying degrees can produce better results and enable us to survive in future.

A LOOK AT POWER CRISIS

The key to solving India‘s power crisis lies in four areas: First, rapidly adding more generating capacity across the country. Second, due to bad governance, transmission and distribution losses are 32% of the installed

generating capacity compared to the global average of 10%.Third, reforming coal mining sector to ensure steady fuel supply to thermal plants. Four, financing bankrupt State electricity Boards who do not have sufficient funds so as to maintain their equipment—– a primary cause of unscheduled power shortage. Nuclear power accounts for 3.7% of India‘s generating capacity and after signing of Indo­US nuclear deal, it accounts for 7.5% of the total generating capacity (by2030). Tough audits of power utilities can reduce T&D losses from 32% to25%, saving nearly 14,000 MW daily, which is approximately half of India‘s power shortage (32,000 MW). Also India should look for off-shore coal supplies in Australia, Indonesia etc. Captive coal shipment from foreign countries can really be an asset as India does not possess a high quality coal.

REALITY CHECK

India is presently stated to maintain its energy profile which is dominated by coal and petroleum well into the first half of the century. The only two energy sources with the potential to structurally change India‘s energy profile are natural gas and nuclear power. For these shifts to happen, however major domestic energy reforms and bold external political decisions are required. It is noticeable that such decisions are advancing most dramatically in the nuclear sector, in part because they are twinned with larger geo-political developments.

REFERENCES

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