Energy Security of India in the 21st Century


By

Dr. G Bharathi Kamath
(Ph.D. from Osmania University, Hyderabad)
Asst. Professor-Economics
ICFAI Business School
Nirlon Complex, Goregaon (East), Mumbai
 


The Genesis:

Energy sector has been one of the strategic sectors of the Indian economy since independence. However this sector has been receiving special significance in terms of policy and reforms only after the first oil crisis of 1973. India's energy production and consumption patterns have undergone substantial change over the last five and a half decade. The policy initiatives taken and the fast technological adaptation have played a considerable role in enhancing the production of energy, whereas the economic growth of the economy which led to faster industrial growth is the factor behind the fast growth and changing pattern of energy consumption. The growth of the economy is directly related to the demand of the energy, more particularly the commercial usage of energy increases with economy moving ahead. This has led to the serious gap between the demand and supply of energy in India. Coal, petroleum and natural gas and power happen to be the important parts of energy sector. Therefore, the analysis of the same is attempted.

The present Scenario:

India accounted for 12.5 percent of total primary energy consumption in the Asia-Pacific region and 3 percent of the world primary energy consumption in 2000-011. Per capita energy consumption remains low at 486 KGOF (Kilograms of Oil Equivalent) compared with a world average of 1659 KGOE in 1998.  Inspite of the low consumption as compared to the global standards, there is an increasing oil and coal imports in recent years with net energy imports increasing from 8% in 1980 to 20% in 20012, which is an area of concern for the Indian energy sector.

COAL:

The major consumer of coal in India is the power sector which consumes more than the two-third of the production. The other industries that depend on coal are steel, cement, fertilizers, chemicals, paper etc. India is comfortable with the reserves of this resource. Therefore, it has a dominant position in the economy even today. Three quarters of the total coal reserves in India are concentrated in the states of Bihar, Madhya Pradesh, and West Bengal.

OIL & GAS:

Most of the demand of the Oil and Gas emerged from the transportation sector. The industries and agriculture also are the major consumers. However the domestic production is quite not enough to meet the growing domestic requirements. The import dependency reached 73.3% in the recent past. However, the effects of global slowdown were reflected in the Indian economy too and were manifested as postponement of several planned refinery capacity additions/pipelines, and work-in-progress of grassroots refineries.

The recent success of the discovery of the Godavari basin in the Andhra Pradesh region has not only improved the energy security of the country by boosting possible gas production by 50%, but also raised the prospects of Indian sedimentary basins in the international arena.


POWER:

The power sector reforms need to strengthened and made deeper for meeting the rising domestic needs. The increasing demand supply gap, the obsolescence of the installed plants, frequent failures of the grids, rising losses faced by the electricity boards, loss in the distribution, relatively high cost of production are some of the major concerns in this sector.  Too much reliance on the non-renewable sources to generate power is also unviable in the long run.

India at present has an installed generating capacity of around 107 GW, which is classified further into 70% thermal, 25% hydro, 3% nuclear; and 2% wind & power. A major portion of this installed capacity is still under the government control and only a small portion is owned by private sector. However the situation was quite reverse before independence where the power sector was dominated by private sector presence. Later due to its strategic nature, all the segments of the power sector were nationalized. It is paradoxical that today again we would be seeking the help of private players to meet the demand supply gap. This model is already being followed in certain states of India such as Maharashtra, AP and Orissa. 

Sectoral energy consumption by fuel (%) 4

Sector   

Coal

Natural gas
Products

Petroleum

Power

Total

Agriculture 

0

1.3

9.5

89.2

100

Industry       

73.1

2.4

13.6

10.9

100

Transport    

0

0

98.5

1.5

100

Residential

0

1.1

71.3

27.6

100

Others

0

33.9

60.9

5.2

100


Future Trends:

With the forecasts of faster growth of the economy in the near future, the demand for the energy will surely increase from all the sectors. The highest demand will for the coal as it forms the major source of energy all over the globe. The estimates show that coal imports will meet 22% of total coal consumption requirements in 2006. The shortfall has to be met by increased domestic production, lest it increases the pressure on the import bill. The demand for oil and power will also be high; this implies that the imports of oil might increase in the future if domestic sources are not exploited quickly. It is estimated that 75 percent of oil consumption needs will be met by imports in the near future.   At present, India does not import any natural gas but demand is supply constrained and imports of gas is likely to arise in the coming years. This import dependence not only means huge foreign exchange outflow, but it implies the vulnerability of the country on external market. This results in frequent fluctuations in the domestic economy especially those sectors which are directly dependent on energy imports.


Solutions:

India will continue to experience an energy supply shortfall through the forecast applied. The gap has been exacerbated since 1985, when the country became a net importer of coal. India has been unable to raise its oil production substantially in the 1990s. Rising oil demand of close to 10 percent per year has led to sizable oil import bills. In addition, the government subsidizes refined oil product prices, thus compounding the overall monetary loss to the government.  The demand growth at a projected annual rate of 4.6 percent is expected till 2010. This is the highest incremental energy demand rate of any major country. In the wake of depleting fossil fuel resources, renewable energy sources such as solar, wind, biomass, small hydro, etc. are emerging as alternative energy options.

The potential for expanding the use of RETs (Renewable Energy Technologies) for energy generation is vast in India and awaits exploitation. Chemical sources of energy such as hydrogen energy, alternative /biofuels for surface transportation, geothermal energy, and ocean energy are also being explored as an opportunity to harness energy in the long run. Inspite of the slow growth there is a lot of potential in this sector. Though environmentally friendly, the high initial cost of RET has been a major deterrent in harnessing the renewable resources. Indian economy not only is highly import dependent but it also shows high level of geographic concentration in the import of the energy requirements. This calls for diversification of sources of oil imports.

Therefore, the Major Solutions and Strategy that should be followed can be summarized as follows:

1. Development of renewable sources as quickly as possible.
2. Finding substitutes for the energy sources and uses.
3. Development of new technology which will preserve the existing energy and also makes its usage efficient.
4. Try and find ways and means to impart awareness among the people towards effective consumption.
5. Allowing Domestic firms to explore opportunities abroad in exploration and refining so as to earn foreign exchange.
6. Allowing the Foreign Direct Investment in these sectors on a priority basis to enhance the capacity and also share the burden of creating productive infrastructure.
7. Increase the utilization of the domestic energy resources to give a boost to output.
8. Create new capacities to improve the energy infrastructure.
9. Allow more and more private sector participation and reduce the control of government in pricing.
10. Bring about more competition and competitiveness in these sectors.

References:

1. BP Statistical Review of World Energy, British Petroleum, 2001
2. World Development Indicators 2001, World Bank
3. TERI's Directory and Year Book, 2002-03 produced in Souvenir, World Mining Congress,1-5 November' 2003, New Delhi, India.
4. abid
 


Dr. G Bharathi Kamath
(Ph.D. from Osmania University, Hyderabad)
Asst. Professor-Economics
ICFAI Business School
Nirlon Complex, Goregaon (East), Mumbai
 

Source: E-mail August 12, 2006

     

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