[Volume.1,
Issue.1]
Harshita
Singh
Asstt.
Prof. Amity University, Noida (U.P)
Ph.
08826380960
Abstract
Twenty First Century
global realities have altered the concept of national security. While national
security is a holistic concept, energy security is one of its major components.
As far as India is concerned, energy security emanates from growing imbalance
between the demand for energy and its supply from indigenous sources resulting
in increased import dependence. The energy resources are limited and
inadequate. According to the Basic Statistics on Indian Petroleum and Natural Gas,
2001-2002, the proven reserve of crude oil is 732 million metric tons. The production
is around 33 million metric tons, but the demand is around 107 million metric
tons. Based on the present GDP growth rate the demand for crude oil will be 190
million tons by 2011-12, which will result in 81% import dependence. With
respect to natural gas, the demand will rise to 313 MMSCMD in 2010-12. The
current demand is only 8% of the world average, which is likely to increase to
20% by 2025 due to fuel substitution.
Need of the hour,
therefore, is to acknowledge the important challenges to India’s energy
security, which are both internal and external in nature. Internally, India has
a limited resource base, lacks adequate infrastructure and an integrated long
term policy. The external challenge lies in getting a continuous supply of
energy at reasonable prices as domestic production is low but the demand is
high.
Keywords:
National Security, Energy Security, Indian Petroleum and Natural Gas.
India
Debates its Energy Security
With one of the world’s fastest growing
economies, energy security is one of India’s overriding domestic concerns.
India already faces a severe energy predicament. Our Prime Minister recently
warned that the country has 10% gap between power supply and demand. Though
India’s economy is averaging over 8% growth in recent times, energy production
is growing at a laggard 5% growth a year. Hence we have a gap of 3%. During
peak hours, some regions saw the gap widen to 25%. Power he warned is the
leading ‘potential bottlenecks’ for India’s economic success. New Delhi’s most
recent review of energy policy says that if the economy merely maintains 8%
growth by 2020, the country will need to increase its electricity production
from its present 131,000 MW to as much as 900,000 MW. The World Energy Outlook
Report published by International Energy Agency (IEA) projects that India’s
dependence on oil imports will grow to 91.6% by the year 2020. Studies have
indicated that a sustained 5% rise in oil price over a year would slash India’s
GDP growth rate by 0.25% and raise inflation by 0.6%.
India is regarded as
one of the highest energy-sensitive economies in the world. In fact, energy
intensity is a measure of energy required by an economy to produce one unit of
GDP growth. As per the predictions of IEA, the energy intensity of the economy
is substantially high. It is 2.88 times higher than that of any developed
country. In practical terms, for producing the same quantity of output, the
consumption of energy in India is almost three-times than that of any developed
country. In other words India consumes more oil per unit of output than most
other countries. The implications of these growing trends may be disastrous.
The high level of energy consumption makes a country more vulnerable to
economic shocks in addition to high oil prices create prohibitive economic
costs in the medium term as it can erode the purchasing power and crowd out
public resources into financing the mounting oil import bills. It will also affect
the equilibrium of Balance of Payments (BoP). Global oil price fluctuations
have a stagflationary impact on the macro-economy of the oil importing country.
It also slows the rate of economic growth, propels inflation and reduces
economic output by acting as tax on consumption. The price shocks that
accompany large disruptions in oil supply have a ripple effect throughout the
economy. It gets reflected through a pure price effect and an economic effect.
The price effect arises because petroleum products become more costly relative
to other products and prices. On the other hand, with higher petroleum prices,
incomes of individuals suffer a reduction in their purchasing power.
Dependence on
Hydrocarbons
Coal will continue to fuel half of India’s
energy requirements, but consumption will increase fivefold by 2030 to over 2
billion metric tons annually. Oil figures will show a similar rise but, unlike
coal, petroleum will almost be imported. Natural Gas, a sector long stunted by
price controls and disinvestments, is expected to see a large expansion as
market forces seep into this sector. In the coming decades two of India’s
greatest challenges will be how to grow while concurrently going for a
worldwide push towards mitigating climate change and how to secure diversified
sources of energy. Right now India’s primary energy is not oil but coal. Coal
accounts for 53% of India’s energy consumption in ’07 and the demands are
growing dramatically. In ’08 the production of coal was around 380 million
tones. Over the next two decades the coal imports are projected to be tripled
compared to the level of ’07. The current reality in India is 44% of rural
households amounting to 300 million people do not have access to electricity.
Another problem for India is
the quality of coal available in the country. It has high ash content and there
is lack of infrastructure in India to clean it. Coal is most polluting
fuel in terms of GHG emissions and already it
account for 65% of carbon di-oxide emissions. In addition to carbon-di-oxide,
burning of coal produces black carbon. Black carbon is responsible for 1/5th
of observed global warming. Further , India’s coal reserves are depleting fast.
At the current usage rate India’s reserve will be depleted in next 100 years.
India cannot progress without burning coal but at the same time India will have
to control its GHG emissions. The country will have to adopt clean coal
technologies such as carbon capture sequestration----it is two step process
where carbon-di-oxide is captured and then it is pumped underground for safe storage.
Right now this capturing part is underdeveloped and expensive. According to
some estimates for India at least 20 billion dollars will be required in the
next 25 years for development of clean coal technologies.
Energy Market Over-Regulated
A dizzying array of price controls,
nationalized energy firms, cross-subsidies and taxes ensures a distorted and
politicized energy sector. Natural Gas is being pushed towards liberalization by
largest private Indian energy firm, Reliance Industries. This should eventually
include the lifting of price controls on gas, paving the way to a huge
infrastructure investment that a genuine gas market needs. A parliamentary bill
to open the door to private coal firms has been waiting the right political
opportunity for many years. Attempts to lift price controls on petroleum prices
have floundered thanks to high international crude prices. However, reforms had
helped ensure prices for industrial and commercial energy customers but still
it is largely market-based. A number of State Governments like West Bengal have
shown that it is possible to make local power utilities profitable without
raising electricity bills.
Strategy Adopted by
India
India is moving towards
a defacto market based energy security policy, similar to that practiced by US
and most western countries. The strategy is that, as long as overall oil and
gas supply exceeds the overall demand the market will ensure all customers are
satisfied. India’s Nationalized Oil Companies are so burdened with paying for
domestic energy subsidies that they are in no position to purchase overseas
energy assets in any significant degree. The Persian Gulf will remain India’s
primary source for both fuel and only a limited diversion to other places like
Africa is possible. The Government is taking greater interest in the prospects
of nuclear power in its future energy matrix. With Indo-US nuclear deal the P.M
hopes that nuclear energy production will increase from around 35,000 MW TO
60,000 MW in next 20 years. Even this will be only 5% to 10% of the projected
energy demands. If the nuclear power is to play a major role, then the industry
had to open up to the private sector. The other strategy for India is greater
utilization of Natural Gas. India is fortunately placed closer to countries
with huge gas reserves. The proposed gas pipeline like IPI, QPI, RKTAPI, MBI
are extremely important for India both from the point of view of energy sector
as well as for sustainable development. Switching over to a much more
eco-friendly gas based energy use option will enable the country’s economy to
move away from high oil dependence. It will also be possible to fix gas prices
and transportation tariff at predictable levels and not linked to highly
fluctuating oil prices.
The Government set up
to provide energy security for the country by souring oil and gas from abroad.
OVL is trying to bridge the gap between demand and supply in the country. It
has established a strong foothold in hydrocarbon area spread over 15 properties
in 13 countries (till 2010). In Oct 2005, OVL started getting crude oil from
Sakhlain I in which India invested 2.77 million dollars. The total recoverable
oil in Sakhlain I is 2.3 billion barrels and 1.71 trillion cubic feet of gas.
OVL’S share of production in Greater Nile Project in Sudan was started in 2003
and is being refined at Mangalore refineries. OVL has a stake in Lay Tay gas
field in Vietnam as well as the Lad Do fields which started production in 2002.
It has invested around 8 billion dollars outside India till now and recently
CCEA authorized OVL to invest 8 million dollars in US energy major EXXON’s
Brazil project. After a series of setbacks in Aug ’08, OVL managed to have
couple of contracts in our favour but unfortunately we sign the contracts when
the oil prices are on their peak and naturally these contracts over look the
price today for eg. Imperial Energy Contract for 2.88 billion dollars.
Another
great potential for India is the use of non-conventional energy sources.
India’s favourable location in tropical region as well as its geographical
diversity ensures that there is scope for renewable energy utilization
especially, solar, wind, tidal energy etc. Of these wind energy holds maximum
immediate prospects because of comparatively small gestation period and smaller
investment requirements.
National Solar Mission
Most important initiative by the
Government in the field of non-conventional energy source is the launching of
National Solar Mission. The potential amount of solar energy which can be
extracted is estimated to be 13,000 MW based on the existing infrastructure
alone. In this, India’s tropical location is very helpful and states like
Rajasthan and Gujarat has maximum potential. In ’08 our Prime Minister
announced the ambitious National Solar Mission to be implemented over the next
decade. The first three years to be used to push and scale up the research to
reduce the cost involved, increased domestic manufacturing and fund solar
lightening with micro-finance. In the
second phase, the concentration will be on the installation of solar water
heaters in office buildings and large residences. In third phase, which India
hopes will begin in 2017, solar energy is to achieve tariff parity with
conventional power. Even if the plan does not fully adhere to this time table,
increased solar energy should be an important addition to India’s total energy
output. The Clinton foundation is in talk with the Government to set up an
integrated solar city (largest solar power project in Gujarat). Although a
relatively diluted energy source, solar energy should be a component in helping
India to quench its energy thirst in a way which is environmentally
responsible.
Augmenting Natural Gas
Supply
There is huge,
insatiated demand for natural gas. In addition to giving impetus for domestic
production and acquisition of interest in fields abroad, efforts to import gas
through pipelines and in the form of liquefied natural gas( LNG) from surplus
countries were also made. Though the imports through pipeline are being pursued
from sources in the east and west of the country, the LNG import project made
significant progress with First Import Terminal at Dahej in Gujarat (5 million
tons) to receive LNG from Qatar on course for commissioning by the first
quarter of 2004. The project is promoted by BPCL, ONGC, GAIL (India) and IOC
through Petronet LNG. Another important terminal has come up at Kochi (2.5
million tons). A 2.5 MMT import terminal is constructed by Shell (India) at
Hazara in Gujarat. It was operationalized in 2004. Thus the security of adequate
supplies of natural gas is within sight together with significant discoveries
of gas in India and acquisition of interests in fields like Sakhlain, Vietnam
Project and a block in Myanmar
Problems in India’s
Energy Diplomacy
The success of India’s energy diplomacy
has been limited because of two main factors. In more developed oil markets it
has brought India into direct conflict with leading MNC’s and the policies of Western
Governments. We have made little progress in acquiring rights in Saudi Oil
Industry though Saudi Arabia is the largest supplier of crude in India. Instead
Indian companies are pursuing opportunities in the region of the margins of
global energy markets. (Burma, Sudan, Libya, Iran, Russia etc) But in these
markets OVL is facing a stiff competition from China’s National Petroleum Corporation
(CNPC), which is much larger and much more active. These competitive pressures
have pushed the Indian companies further towards the margin like Equador, Ivory
Coast etc.
Other problem which is faced
in the Energy diplomacy in the domestic sector includes the large bureaucratic
red-tape surrounding Indian PSUs which is ultimately hampering the progress (we
lost stake in Sudan and Angola). Successive Indian Governments have exploited
PSUs energy companies to fulfill their political mandate and to ease on their
fiscal difficulties. In recent years ONGC and IOC were forced to declare were
high dividends and this has disappeared into public treasury.
Need of the hour
A comprehensive policy
change is needed. The domestic market should be opened up and multiple players
should be encouraged for competition. There should be adoption of rational
principles for energy pricing, establishment of credible energy pricing
regulatory framework and decentralized mechanisms for energy conservation. The
most important step to improve the energy security will be to diversify the
sources. The diversification of sources involves mainly three processes: (a) to
enhance exploration efforts within the country; (b) to pursue upstream
investments overseas; and (c) to look for alternative sources.
On Exploration
In the field of
exploration, India can learn an important lesson from China, which prefers to
acquire what has already been developed, instead of exploring and then
developing fields as pursued by Japan. One policy lacuna here is that foreign
firms are not yet allowed to set up refineries. Given the highly vertically
integrated nature of the industry, this constraint may dissuade all oil majors
from India. However any such modification in policy should not lead to the
emergence of the monopoly.
On Strategic Ties
India must intensify its
options for the strategic tie-up. The recent visit to India of the Venezuelan
President and the assurance given by him seems quite significant. In order to
reduce dependence on OPEC, India must give importance to Russia. Russia,after
OPEC is the largest supplier of oil and this alternative source option needs to
be explored in depth. Given the historical relationship between the two
countries, there should not be any big problem except that other countries like
the US and Japan too is negotiating with Russia to access that rich source.
India and China must begin to diversify their supply of energy sources or start
joint bidding of the projects.
On Stockpiling
Stockpiling or
maintaining reserves protects against unexpected disruptions of supplies. The
US has the largest stockpile and this makes them super power. But stockpile is
not very feasible because any sharp fall in prices will cause huge losses to
oil companies at the national level while stockpiling looks attractive, it has
an opportunity cost of keeping precious foreign exchange locked in oilstocks.
Moreover, still, this is considered a small price to pay if energy is the main
concern.
On Demand Side
The demand side options
can be divided into two categories--- conservation in energy use and developing
alternative energy sources. Alternatives to hydrocarbons like hybrid
technology, fuel cell, biodiesel, advanced composites and light weight steel
construction must be explored to create a viable option for sustainable growth.
In nutshell, a combination of all measures at varying degrees can produce
better results and enable us to survive in future.
A Look at Power Crisis
The
key to solving India’s power crisis lies in four areas: First, rapidly adding
more generating capacity across the country. Second, due to bad governance,
transmission and distribution losses are 32% of the installed generating
capacity compared to the global average of 10%.Third, reforming coal-mining
sector to ensure steady fuel supply to thermal plants. Four, financing bankrupt
State electricity Boards who do not have sufficient funds so as to maintain
their equipment----- a primary cause of unscheduled power shortage. Nuclear
power accounts for 3.7% of India’s generating capacity and after signing of
Indo-US nuclear deal, it accounts for 7.5% of the total generating capacity (by
2030). Tough audits of power utilities can reduce T&D losses from 32% to
25%, saving nearly 14,000 MW daily, which is approximately half of India’s
power shortage (32,000 MW). Also India should look for off-shore coal supplies
in Australia, Indonesia etc. Captive coal shipment from foreign countries can
really be an asset as India does not possess a high quality coal.
Reality Check
India is presently stated to maintain
its energy profile which is dominated by coal and petroleum well into the first
half of the century. The only two energy sources with the potential to
structurally change India’s energy profile are natural gas and nuclear power.
For these shifts to happen, however major domestic energy reforms and bold
external political decisions are required. It is noticeable that such decisions
are advancing most dramatically in the nuclear sector, in part because they are
twinned with larger geo-political developments.
*----------------------*
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