 "Halving energy imports daunting task")
Prime Minister Narendra Modi recently announced, to huge applause, that India must aim to reduce its dependence on imports for meeting its energy needs by 50 per cent over the next decade and a half. The target is impressive, but realising this self-reliance goal might prove daunting. The reasons aren't hard to find: exploration and production from blocks awarded under the New Exploration Licensing Policy (Nelp) have been less than satisfactory even as private oil firms have lowered their capital expenditure plans amid subdued global crude oil price sentiment, further stagnating domestic production.
Modi declared that 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 isn't quite clear whether he was referring to crude oil import alone or to larger energy imports - crude oil, natural gas and coal. According to Ministry of Statistics and Programme Implementation data, 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 of crude. However, figures from the Ministry of Petroleum & Natural Gas shows India's "import dependence in the petroleum sector" in 2013-14 at 77.6 per cent, slightly higher than the 76 per cent of 2011-12.
India's energy demand will grow, said a 2014 McKinsey study, 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 rising from 30 per cent in 2010 to 51 per cent in 2030.
These projections of growing energy demand have to be juxtaposed against domestic production. In 2013-14, India produced 38 mt of 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) 12 mt. While ONGC's production has stagnated of late, the company is expecting output growth in 2015-16.
According to the Budget 2015 documents, the public-sector oil companies are to invest Rs 76,500 crore in project expansion in 2015-16. This amount, which is 5 per cent higher than in the previous year, 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 the 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 March 26 report that the "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 Nelp disappointment
Modi's government is not the first to focus on the need to reduce India's crude oil imports. It was for this reason that in 1998 the United Front government of the day had introduced Nelp. However, 16 years later, the share of imports in domestic crude supply has only grown. As of March 2013, India had awarded 261 blocks under Nelp. Though a total of around $20 billion had been invested in these blocks, only two or three blocks had been brought to production. In fact, after Nelp VI in 2006, as the industry's interest waned, there has been a consistent decline in the number of production-sharing contracts signed. Not surprisingly, in July 2013 the United Progressive Alliance government accepted that "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 to cut oil imports. "This is wishful thinking without a concrete plan of action," says former ONGC chairman R S Sharma. "It is not feasible in practical terms." He adds that 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 because 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 remain at 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.
Modi declared that 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 isn't quite clear whether he was referring to crude oil import alone or to larger energy imports - crude oil, natural gas and coal. According to Ministry of Statistics and Programme Implementation data, 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 of crude. However, figures from the Ministry of Petroleum & Natural Gas shows India's "import dependence in the petroleum sector" in 2013-14 at 77.6 per cent, slightly higher than the 76 per cent of 2011-12.
India's energy demand will grow, said a 2014 McKinsey study, 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 rising from 30 per cent in 2010 to 51 per cent in 2030.
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According to the Budget 2015 documents, the public-sector oil companies are to invest Rs 76,500 crore in project expansion in 2015-16. This amount, which is 5 per cent higher than in the previous year, 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 the 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 March 26 report that the "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 Nelp disappointment
Modi's government is not the first to focus on the need to reduce India's crude oil imports. It was for this reason that in 1998 the United Front government of the day had introduced Nelp. However, 16 years later, the share of imports in domestic crude supply has only grown. As of March 2013, India had awarded 261 blocks under Nelp. Though a total of around $20 billion had been invested in these blocks, only two or three blocks had been brought to production. In fact, after Nelp VI in 2006, as the industry's interest waned, there has been a consistent decline in the number of production-sharing contracts signed. Not surprisingly, in July 2013 the United Progressive Alliance government accepted that "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 to cut oil imports. "This is wishful thinking without a concrete plan of action," says former ONGC chairman R S Sharma. "It is not feasible in practical terms." He adds that 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 because 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 remain at 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.