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| Ways to meet India's increasing energy consumption | | | Noor Mohammad
The growing footprint of terror outfit ISIS in West Asia, which supplies 60 per cent of India's crude imports, has emerged as a new geopolitical threat to continued flow of oil and gas supplies to India
India will have to grow
at 9-10 per cent an
nually over the long term if it is to raise standards of life of its people in a meaningful way. However, for that to happen, the country will need uninterrupted supplies of energy. With domestic production of coal, oil and natural gas stagnating, the task seems to be cut out for policy makers required to ensure adequate energy supplies for the economic engine to keep chugging.
Meanwhile, the growing footprint of terror outfit ISIS in West Asia, which supplies 60 per cent of India's crude imports, has emerged as a new geopolitical threat to continued flow of oil and gas supplies to India.
India can minimise potential risks through a strategy involving increased effort on domestic exploration and production, stepped-up search for equity oil abroad and further diversification of crude import sources as well as expedited harnessing of renewable energy resources like solar, wind and hydro the country is generously endowed with and quicker capacity addition in nuclear power.
Partly because of stagnation in domestic oil output and partly due to strong demand for petroleum products, India's dependence on crude imports, which is already at unsustainable levels, is steadily rising.
The country's oil import dependence in 2014-15 is estimated at 78.4 per cent, up from 76 per cent in 2010-11. India is meeting 20-30 per cent of its natural gas requirement through imports of liquefied natural gas. As per an estimate, country's LNG import could rise from 15 million tonnes in 2014-15 to 38 million tonnes in 2019-20 on the back of strong demand for feedstock from power and fertiliser sectors
Meanwhile, driven by fast-paced capacity addition of coal-fired generation capacity and stagnation in domestic output of the fuel, India's coal imports jumped 34 per cent to 242.4 million tonnes in 2014-15 and could reach 260 million tonnes in 2015-16.
To attract enhanced investment into domestic oil and gas exploration, India needs to offer more attractive fiscal terms as most of prospective fields have already been explored and those which are yet to be taken up for exploration involve high business risks due to the legal regime that allows recovery of costs only when a block is found to have potential of commercial production. Otherwise, explorers have no option but to write off the incurred expenditure.
The Government should also stick to the current production sharing contract regime which allows recovery of exploration and production costs by exploration companies instead of shifting to the proposed revenue sharing dispensation which would increase business risks for contractors.
It would also be advisable for the Government to allow tax holiday for natural gas production, bringing the clean fuel at par with crude oil in matter of fiscal sops.
Also, the Government needs to take a fresh look at financial autonomy delegated to State-owned oil companies, like ONGC Videsh, which have been facing tough competition from their Chinese counterparts in acquisition of oil and gas assets overseas. Currently, ONGC Videsh's board can approve investment up to `300crore or so only. For investments beyond that, the PSU has to go to the Cabinet, a process that is complicated and lengthy. On the other hand, backed by their national sovereign wealth fund, Chinese companies enjoy greater financial and operational flexibility in transacting deals for equity oil and have been quite aggressive in signing deals for hydrocarbon assets in the global market, often walking away with deals originally negotiated by Indian players.
India also needs to further diversify sources of crude oil imports away from the West Asia and towards Latin America and Africa. Given the growing geopolitical volatility in the region, oil companies need to move fast.
India generates about 60 per cent of its electricity with coal. However, the recent trend of growing dependence on coal imports is worrying given that India's current account position is vulnerable.
Given galloping imports, it would be prudent for India to reduce dependence on coal for meeting power requirement.
A credible strategy would be to shift focus from coal-fired generation to renewable and nuclear power which are clean sources of energy and hence compatible with emission reduction objective.
India's position remains vulnerable in the debate on global warming due to high emission-intensity of the power sector. According to BP Statistical Review, India's energy consumption grew at 7.1 per cent in 2014 while emissions by 8.1 per cent, the largest percentage growth by any country. India's coal consumption grew by 11 per cent, the highest for any country.
By all indications, India is going to face pressure to take on binding commitments on emission reductions at the forthcoming UN climate change conference in Paris in December. Spotlight will be on domestic power sector which accounts for nearly 40 per cent of country's overall greenhouse gas emissions.
It is very clear that India will have to reduce carbon intensity of its power sector if it does not want to compromise on long-term growth of the sector. The country can do so by tapping renewable, hydro and nuclear potential for power generation.
The Government has already increased solar capacity addition target by five times to 100 Giga Watt. Wind capacity addition target has also been revised, though modestly. The Government now needs to accelerate capacity addition in nuclear energy in a bid to reduce carbon-intensity of the power sector.
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