India's fragile energy security under alarming pressure from rising dependence on imported oil, regulatory uncertainty, opaque gas pricing policies: FICCI-Ernst & Young report
India's energy security is under severe pressure from its rising dependence on imported oil,regulatory uncertainty and opaque natural gas pricing policies, small pool of skilled manpower and poorly developed upstream infrastructure and dependence on fossil fuels as the dominant source of energy in the near future, says a FICCI-Ernst & Young Report.
"There is a dire need to proactively address the supply issue through a slew of policy reforms measures, as well as to launch a massive awareness campaign on the demand side management, and the pricing of products, so as to incentivize investments for raising domestic production," said R S Sharma, Chairman FICCI Hydrocarbon Committee, and Former CMD ONGC.
"Our national policies and business initiatives must be tailored around the reality that there is no alternative to oil for India for the next 20 years. India must give every possible support to both public and private oil companies to speedily acquire E&P (exploration and production) assets wherever they can in various continents. India must learn from China on how to secure energy for now and future", said Narendra Taneja, noted energy expert and Co-Chairman of the FICCI Hydrocarbons Committee.
"India has to urgently address multiple challenges including maximising efficiencies from domestic production, developing infrastructure and skilled manpower, introduce favourable policies that encourage private players and enable India's O&G companies to compete more effectively against other countries for tapping acquisition opportunities for O&G resources internationally", expressed Dilip Khanna, Partner Oil & Gas practice, Ernst & Young.
To meet the growing energy demand over the next few years, India will have to enhance its energy security by procuring energy supplies at affordable prices. While the country has surplus refining capacity and is an exporter of petroleum products, major investments will have to be made in the domestic upstream industry and to acquire hydrocarbon reserves abroad.
The report titled "India's energy security - Key issues impacting the Indian oil and gas sector", notes that during the period between 2006 and 2010, India's primary energy consumption increased at a CAGR of 8.3%, from 381.4 MTOE to 524.2 MTOE. Coal, oil and natural gas are the major sources of primary energy in India, accounting for 52.9%, 29.6% and 10.6%, respectively, of the primary energy consumption. Although the country has the world's fourth-largest coal reserves, the demand-supply gap of coal has been consistently increasing, with domestic production unable to keep pace with the demand. The deficit in case of oil and gas is even higher. India holds just 0.7% of the world's proven oil reserves while accounting for 3.9% of the global oil consumption - hence importing 73% of its oil consumed.
The increase in oil price by $10 per barrel could potentially slow India's GDP growth by 0.2% and may inflate the current account deficit by 0.4%. In addition, the increase in oil prices could result in fluctuations in foreign exchange reserves, according to Goldman Sachs.
Gas shortages persist, notwithstanding the production commencing from new fields. Currently, around 32% of demand for gas in the country is unmet as domestic supplies are not adequate enough to meet current demand, says the report.
While some of the challenges such as regulatory uncertainty, subsidized petroleum prices and regulated gas prices are specific to the domestic oil and gas industry, players still need to address rampant global issues such as the deficit of manpower and the impact of inadequate and ageing infrastructure, observes the FICCI-Ernst & Young report.
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