Cutting crude import bill is no easy task

In March 2015, Prime Minister Narendra Modi, when inaugurating the ‘Urja Sangam 2015’ — seen then as India’s biggest global hydrocarbon meet aimed at shaping India’s energy security — had urged all stakeholders to increase the domestic production of oil and gas to reduce import dependence from 77 per cent to 67 per cent by 2022, when India celebrates its 75 years of Independence. He had also said that the import dependence should be brought down to 50 per cent by 2030.

But a look at the latest numbers from the Petroleum Planning and Analysis Cell (PPAC) shows India’s oil import dependence based on consumption was 85 per cent in 2019-20, which declined marginally to 84.4 per cent in 2020-21 before climbing again to 85.6 per cent in 2021-22. For April 2022-23 (provisional), it is expected to be close to 86.4 per cent against 85.9 per cent in the corresponding year-ago period.

On the face of it, one would say, Modi’s call is wishful thinking. Is the import dependence plan only for oil and gas or for coal as well?.

Some also point to the growing demand and argue that consumption has gone up, which has marginalised the efforts being made to increase output. Besides forming groups or committees, what can the government do? Clearly, domestic production has to be increased.

At the valedictory session of the Urja Sangam, Arun Jaitley, then Finance Minister, had said that the focus should be on oil and gas exploration to reduce imports. He added that the government is trying to explore long-term financing mechanism for infrastructure projects.

In a statement on May 4 this year, in response to talk about Russian crude oil imports, the Ministry for Petroleum and Natural Gas said that India’s energy needs are enormous with a daily consumption of around 5 million barrels and a refining capacity of 250 mmtpa (million metric tonnes per annum).

“For energy security and to fulfil the objective of providing energy justice to each of its citizens, Indian energy companies buy from all major oil producers in the world. On an average, India has the unique distinction of servicing 60 million visitors at its petrol pumps every single day. Despite challenging times, it is important for the government to ensure access to affordable energy to our citizen,” the Ministry said.

“India has been constrained to pay ever increasing prices charged by certain oil suppliers, which is leading India to diversify its sources of procurement. Meanwhile, energy demand in India remains inelastic,” it added.

What’s the solution?

If this is the situation, then what is the solution?

“The only way we can reduce our dependence on imports is to increase the size of India-owned exploration and production assets overseas. That is what China has done,” says energy expert Narendra Taneja. “Our demand for oil is only going to go up as we go for 10 per cent GDP growth. Let us not forget we will continue to be an oil economy for many more years to come,” he added.

What also needs to be remembered is that oil and gas projects — from exploration to production — have a long gestation period. Besides, pricing and tax policies are not stable and the oil and gas business requires huge capital, so investors are wary of taking risks.

A way out for India is to expand its basket and focus on green energy. But there also are many challenges here as well. For example, wind power generation blossomed on the foundations of the Electricity Act, 2003 and the establishment of a robust home-grown manufacturing base.

The wind sector gained momentum, thanks to private investments and government initiatives coupled with regulatory support. But things changed when FIT (Feed-In-Tariff) was replaced with the reverse bidding mechanism and the advent of solar into the renewable energy mix.

Backed by global supply of solar cells and modules and favourable policies, solar power emerged more competitive than wind power. As a result, wind power capacity addition started to drop.

With the economy gaining momentum, demand for power is on the upswing. With the COP26 commitments in place, the demand for RE is at an all-time high, which calls for substantial capacity addition. While both the solar and wind are susceptible to intra-day and seasonal variability, from a technological and resource perspective as well as from the commercial angle, wind is a better bet in helping India achieve its RE aspirations.

Too much emphasis on solar

Of late, there is a policy overdrive in favour of solar, which is resulting in a decline in wind capacity addition. While there is a short-term tariff advantage, in the long term it is essential to have a balanced diversified resource mix.

There are compelling reasons why wind is more desirable in India’s power basket. These include higher capacity utilisation, and generation — unlike solar — is possible throughout the day. In addition, it also complements solar, providing a more consistent and viable generation profile.

India has developed a strong manufacturing base for wind over time. Even as renewables are being integrated into the grid, their intermittent nature is a challenge for grid operators in terms of forecasting and meeting load. Wind helps balance the grid, which in turn enables higher penetration of solar.

While efforts are on to boost other sources of energy, public sector oil giant ONGC is taking various steps to increase the production by redevelopment of existing matured fields and development of new/marginal fields. Further, improved oil recovery and enhanced oil recovery technologies are being inducted for enhancing recovery from matured fields.

The government has introduced various policies for increasing production of oil and natural gas under the Production Sharing Contract regime, Discovered Small Field Policy, Hydrocarbon Exploration and Licensing Policy, etc.

Yet, the import dependence remains. India will need to work its policy around this reality. The strategy should be that key energy uses, like for cooking and transport, shift to other sources like green energy. On their part, the policymakers have to ensure that all stakeholders are on board and there is no policy flip-flop.

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