You are on page 1of 7

Introduction

Prime Minister of India, Dr. Manmohan Singh made the following statement while briefing the Planning Commission meeting on September 15, 2012: We ended the Eleventh Plan with some notable achievements. The economy grew at an average annual rate of 7.9 percent. This is commendable for a period which saw two global crises one in 2008 and another in 2011. We should then try to accelerate growth to reach around 9 percent by the end of the Plan period. As the Plan document points out, our objective is not just growth of GDP, but growth that is inclusive and also sustainable. Our fiscal deficit is too high and is attracting adverse comment from analysts. It must be brought down over the medium term to release domestic resources for productive deployment in the economy. Because export prospects are not very encouraging, the Plan projects a current account deficit of 2.9 per cent of GDP. Energy is a difficult area where our policy needs a comprehensive review. We are energy deficient and import dependence is going up. It is vital for our energy security that we increase domestic production and also increase energy efficiency. Rational energy pricing is therefore critical. Our energy prices are out of line with world prices. The recent increase in diesel prices is an important step in the right direction. Energy security represents a radical solution to the underperforming Indian economy and basis the current situation, energy security is not merely an aspiration but a critical imperative for an economy with the potential to sustain its performance as a Breakout Nation. Following the statement, the burning question being discussed at the Planning Commission meeting was how to design Indias energy policy for the coming five years in order to ensure it meets the demands of its burgeoning population as well as help revive the drowning economy.

The Oil & Gas Industry


Coal, Oil and Gas together dominate the energy security mix of the nation with coal comprising a robust 53% share of total energy consumption and Oil and Gas comprising the remaining 40% share of the pie. However, the country incurred huge losses (7.7 billion and 5.9 billion units of generation in 2010-11 and 2011-12, respectively) owing to the poor quality of Indian coal1. Therefore, if India were to continue its dependence on coal, a substantial rise in imports will be required as reliance on domestic coal will prove

to be inefficient. The price vagaries of imported coal coupled with domestic infrastructure constraints make this a difficult proposition1. While hydroelectric power plants account for 19% of power generated in India, developing them involves major rehabilitation and resettlement, land acquisition as well as environmental clearance. Nuclear power currently constitutes only 1% of the total primary energy consumption of the country and its share in the primary energy mix is expected to increase only marginally to about 3% in 2035 indicating limited potential for nuclear fuels in India.1 This situation thus highlights the importance of crude oil to Indias energy future and the dire need to work towards ensuring oil security in the quest of energy security. In the past decade, India has faced increasing consumption of oil with marginal increase in production of oil making India more susceptible with respect to its energy security. The increasing difference between crude oil production and consumption requires us to explore solutions both on supply and demand side in order to take steps towards attainment of oil security.

Supply Side Interventions


At the end of FY 2010-11 only 22% of the total sedimentary basins in India were moderately to well explored and it is certainly indicates the need to further unlock and explore the potential of Indias sedimentary basins. The Integrated Energy Policy aims at complete exploration of the sedimentary basin by 2025 which represents an uphill and ambitious target considering it has taken us more than a century from the first discovery in Assam in 1889 to reach the current situation.

Economics of Domestic Vs. Foreign Oil


India pays a heavy price for its high import oil dependency. In FY 2012 Oil imports accounted for 50% of the countrys total exports and 54% of the countrys trade deficit was owing to the oil trade deficit. High dependence on oil imports has widespread consequences on the Indian economy and fuelled substantial weakening of Indian Rupee. India would have increased its GDP by a whopping 6.5% if the import of crude oil were completely avoided1. Partial, if not complete, independence from crude oil import would fetch additional economic benefit of value equal to or more than the economies of countries like Cyprus, Kenya and Bulgaria.

Policy Interventions for Domestic Oil


It takes an average of 60 approvals across 7 different ministries for any energy project in India since each of them is working independently2. This is further reiterated by the fact that since the introduction of the New Exploration Licensing Policy (NELP) in 1998, 60 discoveries have been made out of which 51 have been gas discoveries. However, only 2 out these discoveries are under production2. Moreover, the 11th Five Year Plan envisions greater than 90% of oil requirement by 2030 to be met through imports even though we have vast resources of untapped potential in India. Dr. APJ Abdul Kalam has proposed the formation of National Energy Commission which would help in coordinating efforts to meet the rising energy needs of the country's growing population.

Case Studies proves that oil landscape can be transformed positively


India, Norway and Brazil had similar production profiles in the 1970s regime but a strategic vision for the petroleum industry followed by Norway and Brazil has led to them being one of the key oil and gas markets. Norway, for example, became the largest exporters of crude oil and savings from intense O&G production activities have helped in creation of Norwegian Petroleum Fund of 520 million USD1. While special taxes amounting to 78% for oil and gas production mean the government receives a high proportion of the upside but a similar 78% tax rebate on exploration and innovation expenses provides a significant hedge on the downside risk to corporations as well. Since1972, Norway has separated policy, regulatory, and commercial functions in the governments administration of petroleum development. This clear vision for the O&G sector has led to an investment of 110 bn USD in the E&P sector in Norway just in the last 5 years. However, in comparison to this, India in investment since 2000 has been at a meagre 20 billion USD.

Increasing reliance on Technology


We also need to explore the potential of utilizing better technology such as Enhanced Oil Recovery (EOR), which though complex hold immense potential, to ensure higher recovery from the currently producing fields.

Need to move towards self-sufficiency


Off-late, there has been a lot of emphasis on energy security by USA, as evident in the recently concluded presidential elections and there are claims that they will be successful by 2020. It is imperative that India starts taking strides to achieve the same, particularly when it has so much of its resources lying unused. But it is not an easy path to tread. Foreign investment has been very sparse in oil and gas exploration due to various factors. What remains to be seen is whether India will be able to gear itself quickly enough to continue on track to become a major economic power which it promises to be.

Problem Statement
In this context, we need you to look for solutions for the following problems: 1. What can be done to make India energy secure? 2. What measures can be adopted by the Government to boost domestic exploration of O&G?

References 1. Its our turn now: E&P Partnership for Indias energy security, Report by PriceWaterhouse Coopers http://www.pwc.in/en_IN/in/assets/pdfs/publications-2012/e-p-report-8.pdf 2. Economic Times Dialogue on Energy Security, June 16th 2012 3. The Energy Debate: Can India reduce its import dependence, organized by Network 18, October 1st 2012 4. Statistical Review of World Energy 2012, BP 5. Approach Paper to 12th Five Year Plan, Planning Commission of India

Appendix

2030 Coal Oil Gas 2020 Nuclear Hydro Bioenergy 2010 Other renewables

0%

20%

40%

60%

80%

100%

Fig 1: Energy Demand (Mtoe) of India Source: New Policies Scenario, World Energy Outlook 2012, IEA

25000 20000 India 15000 10000 5000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 China UK US Brazil

Fig 2: Oil Consumption(thousand Barrels/Day) Source: BP Statistical Review 2012

Brazil

Fig 3: Import Dependence (Crude Oil): India Vs. Brazil Source: BP Statistical Review of World Energy 2012

60 50 40 30 20 10 0

44 22 22

50

Per cent

15

17

18

12

Moderate to Well Explored

Poorly Explored 1995-96

Exploration Initiated 2011-12

Unexplored

Fig 4: Exploration Landscape of India Source: Hydrocarbon Exploration & Production Activities, 2011-12, DGH

4000 3500 3000 2500 2000 1500 1000 500 0

2193

2039

858 148 175 6

India 1971 1981

Brazil 1991 2001 2011

Norway

Fig 5: Production in thousands barrels per day Source: BP Statistical Review of World Energy, 2012

31 76

Discoveries declared commercial

Remaining Discoveries

Fig 6: Status of 107* Hydrocarbon Discoveries under NELP. *A total of 111 discoveries (40 oil and 71 gas) have been made in 38 NELP blocks. Segmented data available only for 107 discoveries Source: 15th Report of the Standing Committee on Petroleum & Natural Gas

You might also like