Prime Minister Narendra Modi last week announced, to huge applause, that India must aim to reduce its dependence on imports for meeting its energy needs by 50 per cent over a decade and a half. But realising this self-reliance goal might prove daunting.
Exploration and production from blocks awarded under the New Exploration Licensing Policy (Nelp) have been less than satisfactory; and private oil firms have lowered their capital expenditure plans amid subdued global crude oil price sentiment, further stagnating domestic production.
Modi said India’s dependence on imports for 77 per cent of its “energy” requirement should decline 10 per cent by 2022, and 50 per cent by 2030. But it was not clear whether he was referring to import of crude oil alone or larger energy imports — crude oil, natural gas and coal.
According to data from the Ministry of Statistics and Programme Implementation (Mospi), India imported 189 million tonnes (mt) of crude oil in 2013-14; its total consumption during that year was 222 mt. This implies the country met 85 per cent of its demand through imports — a significant increase from 76 per cent in 2005-06, when India had imported 99 mt crude oil. However, data from the Ministry of Petroleum & Natural Gas shows India’s “import dependence in the petroleum sector” in 2013-14 stood at 77.6 per cent, slightly higher than 76 per cent in 2011-12.
In 2013-14, India produced 38 mt crude oil — Oil and Natural Gas Corp (ONGC) produced 22 mt, Oil India Ltd (OIL) 3.4 mt and the others (private companies or joint ventures under the production-sharing contract, or PSC, regime) 12 mt. While ONGC’s production has stagnated lately, the firm is expecting output growth in 2015-16.
According to Budget 2015 documents, public-sector oil companies are to invest about Rs 76,500 crore in project expansion in 2015-16, five per cent higher than the previous year. The amount includes the rise in ONGC’s capex from Rs 34,813 crore to Rs 36,249 crore, and OIL’s 11 per cent capex increase to Rs 3,900 crore, even as ONGC Videsh Ltd’s capex is to come down to Rs 10,400 crore from Rs 12,300 crore.
Unlike ONGC, private companies, cautious on subdued crude oil price sentiment, have tempered their expenditure plans. Cairn India, a subsidiary of Anil Agarwal-controlled Vedanta, has, for example, more than halved its capex to $500 million from $1.2 billion, and is reported to have laid off employees to cut cost.
Global energy consultancy Wood Mackenzie said in a 26 March report “oil and gas industry is responding to the low oil price environment with cuts in exploration budgets for 2015, which will average 30 per cent, leading to suggestions exploration activity could be significantly curtailed”.
The Narendra Modi-led central government is not the first to focus on the issue of reducing India’s crude oil imports. It was for this reason that the United Front government of the day had introduced Nelp in 1998. However, sixteen years on, imports’ share in domestic crude oil supply has only grown, in spite of Nelp.
As of March 2013, India had awarded 261 blocks under Nelp. Though a total of about $20 billion had been invested in these blocks, only two or three blocks had been brought to production, and, after Nelp VI, there was a consistent decline in the number of PSCs signed, as the industry’s interest waned.
Not surprisingly, the United Progressive Alliance (UPA) government of day in July 2013 officially accepted “the performance of Nelp blocks has been far from satisfactory due to a variety of reasons. It is evident from the fact that only six of the 110 discoveries announced under Nelp are under production”.
Nelp’s poor performance, stagnant domestic production and massive cuts in oil firms’ capex after a slide in global crude oil prices do not augur well for India’s plans of cutting oil imports. “This seems wishful thinking, without a concrete plan of action. It is not feasible in practical terms,” says former ONGC chairman R S Sharma. He adds even ONGC might find it difficult to get its plan of investing Rs 40,000 crore in discoveries on the east coast approved by its board, as such a level of investment might not be viable at the current low gas price.
According to the Planning Commission’s recent report, India Energy Security Scenarios 2047, the country’s oil imports could continue to be around 80 per cent of consumption in 2030, even in a “maximum energy security pathway” scenario. According to the ‘BP Energy Outlook 2035’, released in February this year, the share of India’s energy production (including coal, oil, gas and biofuels) in its total consumption will decline from 59 per cent at present to 56 per cent by 2035.
“India’s energy production rises 117 per cent by 2035, while consumption grows 128 per cent,” the report says, adding oil imports will rise 161 per cent, even as a decline in oil production is offset by increased gas and coal output. The report says India’s energy intensity of gross domestic product will improve slowly; in 2035, it will be 30 per cent lower than today.
A 2014 McKinsey study said India’s energy demand would grow from 691 million tonnes of oil equivalent (mtoe) in 2010 to 1,500 mtoe in 2030, based on GDP estimates, composition of the economy and demand growth from industry, buildings and transport sectors, in a business-as-usual scenario. The report projects India’s import of primary energy requirements will rise from 30 per cent in 2010 to 51 per cent in 2030, assuming efficiency gains and a dip in energy intensity from 0.56 kg of oil equivalent per dollar in 2010 to 0.47 koe per dollar in 2030.