The Indian government is deeply concerned about the rising share of crude oil imports, from 65 per cent of oil demand in 2000, to 83 per cent in 2013-14 and to 90 per cent in 2030. Coal imports have been rising year on year, reaching over 20 per cent of demand. By 2030, imports of natural gas are likely to rise to five times the level in 2013-14.
In response, two strategies are often recommended. The first is to aspire to energy independence. This does not imply zero imports but aims to reduce rather than increase the share of imported oil, gas and coal. For instance, the government wants oil imports to fall to 67 per cent of demand by 2022 and to 50 per cent by 2030. The second strategy has been to buy acreages in oil and gas fields and in coalmines beyond India's shores. The assumption is that such overseas assets will deliver energy resources to India's shores in times of crisis.
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These strategies are, however, inadequate. Even as domestic energy production rises, India will get deeply embedded into global energy markets. Moreover, the needed variety in sources of supply is not guaranteed by solely owning energy assets.
In a new book, Energizing India1, my co-authors and I argue that energy security for India will not be the same as energy independence. Instead, it would mean the availability of adequate quantities of critical resources, at prices that are affordable and predictable, with minimum risk of supply disruptions, to ensure sustainability for the environment and future generations. Such security will require meeting four imperatives: assured supply, safe passage, secure storage, and a seat at one or more international forums involved in international energy trade and governance.
While ownership of assets might have a limited role in times of crisis, it has mostly been an ineffective strategy because of low shares of overseas production (below four per cent of total oil and gas demand in 2014-15), a lack of financial resources to compete with other countries, the risks of operating in politically fragile areas, and the opportunity cost of not selling energy produced in global markets. Instead, India's diplomatic capacity has to align with its commercial interests, while the economy shifts from long-term contracts to relying on diverse sources, taking advantage of lower spot market prices and hedging via forward contracts.
India will need to ensure safe passage of overseas energy supplies. This will be, partly, a function of India's ownership of - or access to - a shipping fleet. Compared to other major energy consumers, India's share of oil and gas tankers is low. Safe passage will also require naval capabilities for India to become a net security provider in the Indian Ocean. India has been pursuing regional as well as bilateral cooperation on maritime security in the Indian Ocean, engagements that now need greater intensity. It will also need naval assets that can work with other navies in protecting energy supply routes beyond the Indian Ocean, particularly in the South China Sea, from which new supplies of energy might flow in future.
As a buffer for emergencies, India will need secure storage, infrastructure and management capability to store and transport energy resources, within and outside its territory. Strategic petroleum reserves capacity of 5.33 MMT (about 40 million barrels) has been developed at three locations, to be commissioned and filled by end-2016. Additional capacity of 12.5 MMT (93 million barrels) is due by 2020. However, storage capacity is low, relative to that in OECD countries or in China (current and planned) - and capacity alone would not suffice.
It cost $615 million (about Rs 4,000 crore) to build storage for 13 days' worth of oil (not counting the cost of oil). Alternatively, some emergency crude oil stocks could be sited in a few other countries, as is the practice among members of the International Energy Agency. India has drawn on the OECD's mechanism of creating oil emergency response organisations, stockholding oil, and implementing oil-stock draw-downs. But it needs a regulatory body to oversee the entire strategic petroleum reserve process; coordination among government, oil companies and the India Strategic Petroleum Reserves Limited; and replenish and maintain SPR levels once normalcy has been restored.
There is no global energy regime. So, India will need to identify the key functions that a regional or plurilateral energy institutions could perform, which would otherwise be hard to do unilaterally. These functions include assuring transparency in energy markets, cooperatively managing strategic reserves, jointly patrolling energy supply routes, arbitrating disputes, and pooling resources to lower insurance premiums on transporting resources. There will be tough choices but either way India's integration into global energy markets will be one of the key shifts in the global economy.
The writer is the chief executive of Council on Energy, Environment and Water (http://ceew.in).
1. Energizing India: Towards a Resilient and Equitable Energy System (SAGE, 2016 forthcoming)