India's heavy reliance on fossil fuels will remain for some decades to come

Despite attempts to cast India as climate conscious, the country's heavy reliance on fossil fuels will remain for some decades to come

India will stay addicted to fossil fuels for decades despite the government’s attempts to cast the country as climate conscious and spur investments in clean energy. Growing demand for coal and transport fuels and multi-billion dollar investments in existing and upcoming oil, gas and transport infrastructure crimp a speedy transition to a clean fuel economy.

Existing commitments to fossil fuels — critical for expanding affordable energy access to India’s price-sensitive economy — was what prompted Prime Minister Narendra Modi to announce a zero-carbon target nearly 50 years into the future at the COP26 summit in Scotland.

There’s a lot at stake for New Delhi as it mulls a transition from fossil fuels. A rapid transition to electric vehicles (EVs) or renewables risks leaving stranded billions of dollars in downstream assets and hurt prospective investments.

India can ill afford such a transition. Minister of Petroleum and Natural Gas Hardeep Singh Puri said last month at the India Energy Forum that the country will continue to depend on conventional fuels with gas serving as the energy in transition.

The Paris-based International Energy Agency thinks likewise, forecasting India's energy demand to increase by more than any other country in the next 20 years in its India Energy Outlook 2021 report.

India's net dependence on imported oil rises to 92 per cent by 2040 based on today's policy settings, from around 83 per cent now, and the thermal fuel import bill triples by 2040, with oil by far the largest component. Oil demand rises by over 40 per cent to 7.1 million barrels a day (mn b/d) in 2030 from 5 mn b/d in 2019, and gains further to 8.7 mn b/d by 2040, the IEA said. Road fuel use will double to 3.8 mn b/d in 2040 from 1.9 mn b/d in 2019 as the total vehicle fleet doubles over the period. 

India is unlikely to see demand for oil peaking before 2040, HPCL Chairman M K Surana has said. The country still needs to add at least two mn b/d of refining capacity by 2030 — despite aggressive environmental policies — to meet growing demand, IOC chairman SM Vaidya said. Private sector refiner Nayara Energy’s CEO Alois Virag sees Indian product demand growing until at least 2035. 

Opec, India’s biggest oil supply group, is equally sanguine about India’s appetite for fossil fuels with Saudi Arabia and Iraq spending tens of billions of dollars to expand production capacity to meet future needs of emerging markets led by India. 

Opec sees oil demand growing in the short and long terms, and for the fuel to retain the largest share in the energy mix at 28 per cent in 2045. OECD countries' oil demand is unlikely to recover to 2019 levels given an increasing emphasis on a low-carbon future. But non-OECD demand, including India and China, will continue rising to 74.1 mn b/d in 2045 from 48.6 mn b/d in 2020.

The government is partly to blame for a growing reliance on fossil fuels. Two key programmes have made the country even more dependent on imported fuels. Import dependency of LPG has risen to as much as 70 per cent in August from around 55 per cent in the past as the government improved access to cooking fuel to over 95 per cent of households from a little over 50 per cent in 2014 via the Pradhan Mantri Ujjwala Yojana at a cost of over Rs 8,000 crore. 

Yet another mega-infrastructure project involves doubling India’s gas pipeline network and quadrupling access to city gas over the next five years. The target is to increase the share of gas in the country’s energy mix to 15 per cent by 2030 from 6-7 per cent now.  

Oil and gas will continue to drive India’s investments for the next few decades in the post-pandemic era as the government pushes state-oil companies and foreign investors to boost investments in refineries, petrochemicals plants and city gas projects. 

Saudi Aramco is in talks to buy 20 per cent of Reliance Industries oil-to-chemical business in a $15 billion deal; it is also still considering investing in a much delayed 1.2 mn b/d, $55-billion refinery-cum-petrochemical project in Maharashtra in partnership with Adnoc and Indian oil companies; one of India’s biggest-ever investments was Rosneft’s acquisition of Essar Oil for $13 billion in 2017, while BPCL’s privatisation may yield around $13 billion.

State-run companies will spend a combined Rs 2 trillion ($27 billion) to boost Indian refining capacity, according to the oil ministry, with IOC, India's biggest refiner, planning Rs 1 trillion in spending over four or five years in refining and chemicals. By 2030, the government has targeted crude processing capacity to reach 7-8mn b/d.

The government estimates investments of Rs 1.2 trillion in the ninth and 10th city gas distribution (CGD) licensing rounds and another Rs 1.2 trillion in the 11th round on the back of plans to double India’s existing gas trunk lines to 32,000 km in the next few years. It has awarded 136 geographical areas under the ninth and 10th rounds, covering 70 per cent of the country’s population in around 300 districts, according to the oil ministry. 

The CGD network covered around 20 per cent of the country’s population in 2014 when the Bharatiya Janata Party-led National Democratic Alliance came to power. New Delhi also plans to increase compressed natural gas (CNG) retail outlets to 10,000 from around 3,143 as of end-April, and increase the number of households covered by piped natural gas to 50 million by 2030 from only around 7.9 million currently.

State-owned distributor Gail India expects demand for gas to more than triple as a result. OPEC expects India’s gas demand to grow by 5.4 per cent a year to reach 3.8 mn b/d of oil equivalent (boe/d) by 2045, with oil consumption rising 3.7 per cent a year to 10.8 mn boe/d by 2045. At the same time, renewable energy use is expected to grow by 11 per cent a year, although this will take it to only 3.6 mn boe/d by 2045.

India will need the LNG equivalent of 160 mn t/yr in 2030 to meet energy access targets, with domestic production providing only 40 mn t/yr, according to Petronet LNG. LNG imports could quadruple to 120bn cubic metre in 2040 for from around 30bn cubic metre in 2019, the International Energy Agency (IEA) said. This will entail huge investments in new LNG import facilities in addition to an existing import capacity.