July 2023

As a large and growing economy, India holds the distinction of being the third-largest consumer of crude oil as well as a big gas importer, making it imperative to have a sensible energy policy. Given its significant dependence on imports, India is likely to remain an importer of crude oil and gas for the foreseeable future. Roughly 85-90 per cent of crude oil and 45-50 per cent of natural gas is imported at present, and India’s energy demand is expected to grow at about 3 per cent per annum till 2040.

This exposure means careful management is required to achieve a modicum of energy security. Energy risks impact growth, and also have financial implications for the Trade Account. The energy policy needs to drive exploration and production while stabilising prices. Also, the policy must be flexible enough to handle escalations of geopolitical tensions such as those created by the Ukraine War. Moreover, the policy must encourage the increase in refining capacity and the expansion of gas infrastructure.

Domestic crude production is on a decline. Compared to 2020-21, the 2022-23 production has dropped 4.26 per cent from 30.5 million tonnes (mt) per annum to 29.7 mt. The fields are ageing, the output has fallen and there have been no new discoveries.

However, the production of petroleum products has registered an increase of 4.8 per cent in the past two fiscal years, reaching 266.5 mt in 2022-23 from 254.3 mt in 2021-22. As for natural gas, the production was around 34,450 mmscm in 2022-23, an increase of 1.25 per cent compared to 2021-22 (34,024 mmscm).

The consumption of petroleum products has increased from 201.7 mt in 2021-22 to 222.3 mt in 2022-23, indicating an economic rebound. Hwever, gas consumption declined 6.53 per cent year on year in 2022-23 due to high prices and supply constraints. The new gas pricing formula promises some stability for the next two years – let us see how it works in practice. There is also a policy push to encourage domestic bio-CNG utilisation, which provides a possible alternative to imports.

India’s refining capacity exceeds domestic need, and exports play a key role in balancing the Trade Account. The country is focused on increasing refining capacity. On the gas front, there have been 11 successful rounds of city gas distribution bidding, while pipeline and LNG terminal capacity have shown steady growth. The vision of an interconnected national gas grid is being pursued.

The oil sector has witnessed the roll-out of pipelines. Oil and Natural Gas Corporation has recently entered into agreements with ExxonMobil, Chevron and Total Energy for collaborations in the exploration of challenging, deep and ultra-deep water areas. The recently launched Open Acreage Licensing Programme Bid Round-VIII offers 10 blocks for international bidding.

Investing in digitalisation alongside physical infrastructure will be important going forward. This presents an opportunity as technologies such as IoT, big data analytics, geographic information system, SCADA systems and cloud architectures will be needed in a big way.

Ensuring energy security is a challenging task. Policymakers must balance the conflicting needs of rising demand and maintaining discipline on the Trade Account, while trying not to burden consumers, missing carbon-reduction targets or force players on the energy value chain to absorb losses. The policy thrust seems to recognise the constraints and targets them, but continued long-term balancing will require a lot of foresight and planning.