How can India meet rising oil demand?

Tue, 10 Apr Pre-Open

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India is in the midst of an energy crisis. Crude oil production rose by only around 1% in FY12 over the previous year to 0.8 million barrels per day (bpd). Domestic oil production has seen dismal growth, while demand for energy is increasing rapidly. Thus there exists a huge demand-supply gap which can only be met through costly imports. However, spending precious dollars on this black gold has many negative ramifications, according to an article in the Economic Times.

Firstly, India's import bill has risen to US$ 475 bn for FY12. Out of over 30%, (US$ 150 bn) consisted of crude oil imports. Secondly, the trade deficit has increased to US$ 175 bn and oil imports comprise a whopping 85% of the total trade deficit. Thirdly, India's balance of payments has turned negative for the first time since the Lehman Brothers crisis, despite strong inflows from foreign Institutional Investors (FIIs).

Petroleum minister, S Jaipal Reddy now has a huge task on his hands. From flattish growth in FY12, he intends crude oil production to rise to 11% in FY13 and a further 8% in FY14 to touch 1 m bpd. But this still won't help meet demand. India's crude oil requirement in FY14 is expected to rise to well over 4 m bbd. But, if Cairn India and Oil and Natural Gas Corporation Ltd. (ONGC) oilfields deliver on their output, crude imports, however, should fall from the current level of 80% of total consumption to around 75%. However, the long term target needs to be around 65%, which was the historical level seen in the 1980s and 90s.

But, this requires co-operation from the government on the policy front. Akin to every sector, bureaucratic delays need to be avoided. More joint ventures need to be encouraged to explore oil and fields in foreign lands. Perhaps India can take a cue here from China which has been buying productive assets from across the globe. The new shale gas strategy that the Prime Minister put forth earlier this year can also be explored. By end-2013, shale gas exploration bids in six Indian regions (Cambay, Assam-Arakan, Gondawana, KG onshore, Cauvery onshore and Indo-Gangetic basins) could prove lucrative. This form of energy has become increasingly important in the United States. Despite high technology costs and some environmental concerns, shale gas is helping America reduce its reliance on imports.

Well to rescue India's trade deficit from bleeding further, increased focus on energy developments is the need of the hour. Stepping over red tape and harnessing new sources of energy will be key challenges to help India become less dependent on imports for its energy needs.