India's Energy Security under Pressure due to Increasing Dependence on Imported Oil

As per a joint study by the Federation of Indian Chambers of Commerce and Industry ( FICCI) and consultancy firm Ernst and Young, India's energy security is under severe pressure due to reasons like increasing dependence on imported oil, regulatory uncertainty and natural gas pricing policies.

The report mentioned that a small pool of skilled manpower and poor upstream infrastructure are also exerting pressure.

The Report

According to the report, there exists a dire need to address the supply issue through a slew of policy reforms, as well as to launch a massive awareness campaign on the demand side management, and the pricing of products to incentivise investments for raising domestic production.

As per the Integrated Energy Policy of the Government, India's requirement of primary commercial energy is projected to increase from 551 million tonne of oil equivalent in 2011-12 to 1823 mt of oil equivalent in 2031-32.

The increase in oil price by $10 a barrel is likely to slow the GDP growth by 0.2 per cent and may inflate the current account deficit by 0.4 per cent.

Also, the recent depreciation of the rupee raised the crude oil imports costs, impacting trade deficit and domestic inflation. Consequently the import of crude oil and oil products rose from $50.3 billion in 2005-06 to $115.9 billion in 2010-11.

In the current financial year (till October 2011), oil imports touched $75 billion. The country meets 73 percent of its fuel needs through oil imports.

It was observed that around 32 per cent of demand for gas in the country is unmet. Most of the gas production and liquefied natural gas (LNG) terminals were located in the western part of the country, adversely impacting the availability of gas in the rest of the country.

The availability of gas is expected to increase on the back of incremental supplies from the KG-D6 block, as well as from the new gas fields of ONGC and Gujarat State Petroleum, coal-bed methane (CBM) and new LNG facilities.

Suggestions made

The study sugggested the need to introduce reform and favourable policies for the private sector to secure foreign oil and gas assets. India, though has surplus oil refining capacity, it still needs major investments to upgrade the existing production infrastructure.

It also stressed on the need to shore up the energy security initiatives in an environment of unstable geopolitical situation in the Middle East and North Africa, from where India gets 60 percent of its oil imports.