Ensuring energy security

India must explore both domestic reform and foreign outreach

The International Energy Agency (IEA) on Wednesday issued a projection of growth in global crude oil demand up to the year 2030. According to the IEA, the largest driver of this demand growth will be India, which will take over the spot previously occupied by China, the leading importer of oil. India, currently the world’s third-largest importer, is projected to increase its demand for oil by almost 1.2 million barrels a day between 2023 and 2030. Given that the total increase in crude oil demand in this period will be about 3.2 million barrels a day, India is basically expected to drive one-third of global crude oil demand growth. This will take consumption in India to 6.6 million barrels per day by 2030. The Indian economy, according to the IEA, will continue to see growth in demand for transport fuels, which is stagnating or decreasing in other markets.

For India, dependence on external suppliers for this demand growth is a major economic and security vulnerability. Global spikes in oil prices can cause chaos to the external account and fiscal position, drive up inflation, slow growth, and lead to political turmoil. Meanwhile, supply chains for fossil fuels are vulnerable to geopolitical tensions in West Asia. Thus, the government has rightly chosen to emphasise alternatives to fossil fuels. The IEA has estimated that new electric vehicles and more efficient use of existing energy sources will reduce demand growth in India by almost 500,000 barrels a day. The government has also focused on speeding up the installation of solar and wind power capacity. But even with these, India will clearly continue to be dependent on oil and gas for some time to come.

There are only two approaches that can help moderate this problem. First, if domestic resources can be properly discovered and exploited. And second, if greater control can be exerted on global supply chains, including through the actual purchase of fields by Indian oil and gas majors. Some progress is being made on both, but not enough. On Tuesday, Prime Minister Narendra Modi met with about 20 top executives of multinational fossil-fuel companies, including BP, Vedanta, and ExxonMobil. The government’s aim is to increase private-sector investment in exploration in the country. However, previous attempts at this policy have been focused on maximising government revenue, with little thought given to moderating investor risk. This is not the right approach for the sector, and recent attempts to course-correct must be followed through.

There are compelling reasons to increase exploration in India, and fears that the private sector might make windfall profits should not hold policymakers back. Besides, Indian oil majors should also be pushed abroad. This week, it was reported that Oil India Ltd was discussing a return to operations in Libya with that country’s national oil company. Libya is aiming for an increase of over 75,000 barrels a day in oil production in the next three to five years. Other such attempts to secure the crude oil supply chain are needed, and financial and diplomatic support from New Delhi must be available to do so. The future competitiveness and stability of the Indian economy depend on sustainable supply chains for energy, and both domestic reform and foreign outreach should, thus, be a major priority for the government.