Will this aid India's energy sector?

Thu, 14 Mar Pre-Open

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India is the 7th largest country in the world in terms of land mass and it has the 2nd largest population in the world after China. But, another important fact about India is that it is the 4th largest energy consuming nation in the world. Not having enough of energy resources has forced India to import oil and coal from overseas, widening its already large current account deficit.

Now, in the latest move to avoid undercutting and to enhance prospects of bids for overseas energy assets, the government is working on a strategy to ensure that PSUs and private companies, coordinate actions including submitting a single bid. There are a few procedural issues which the government is trying to smoothen. And this may just help India secure its energy needs.

So far, in the global race for resources, India has always faltered behind the insatiable dragon nation, China. The competition for resources has raised prices for the overseas assets. India has lost projects to China in Kazakhstan, Nigeria, Angola and Myanmar. Having one strong Indian bid, irrespective whether it comes from the private or public sector will be beneficial. Plus, the government wants to focus more on the acquisition of coal assets.

Currently, India imports more than 80% of its crude oil needs. For natural gas it depends on imports for 1/4th of its energy demand. Right now, Indian firms are eyeing global opportunities in coal mining, power projects, refining, downstream facilities, and equity stakes in hydrocarbon blocks and infrastructure. The country really needs to make strong inroads into energy security. This is key for India to revert to erstwhile growth rates. While public sector firms such as Oil and Natural Gas Corp. Ltd, Oil India Ltd, Gas Authority Of India Ltd. (GAIL) and Indian Oil Corp. Ltd have invested a total of around Rs 650 bn towards overseas energy security efforts, private sector firms such as Reliance Industries and Essar Oil are also in the reckoning. While public sector firms suffer from bureaucracy and red-tapism, private firms are a lot more nimble on their feet.

India's energy demand is expected to more than double by 2035, from less than 700 m tonnes of oil equivalent (mtoe) now to around 1,500 mtoe. Plus, according to the International Energy Agency (IEA) world energy outlook, India, China and West Asia will account for 60% of the world's energy demand by 2035. By then the price of imported crude is expected to be around US$ 215 a barrel in nominal terms. Without immediate efforts made in terms of energy security such as purchasing overseas oil assets and buying equity in various opportunities, India will be ill-equipped to handle future growth. And it could be sacrificing its strong potential to become a world economic superpower.