In terms of US dollar, India was the fourth largest importer of oil (the first three being China, the United States and Japan) in 2017. This year, it may overtake Japan in importing oil to become the third largest. In fact, with the rising prices of oil in the international market, India’s import bill went up by 25 percent in 2017-18 to $109.11 billion over the previous financial year. Obviously, this is not a good status to have. But then the fact remains that India imports nearly 80 percent of its oil-requirements, which, in turn, will only go up in the coming days as we are a developing country. Our domestic production is not rising. According to the latest government report, India’s indigenous crude oil production, both on shore (Assam, Gujarat, Andhra Pradesh and Tamil Nadu) and off shore, in April 2018 remained nearly flat, decreasing marginally by 0.83 percent to 2.915 tm as compared to 2.939 tm produced in the corresponding month a year ago, pushing the country’s import dependence to 83.7 percent for the month.
Against this background, there is no real possibility of the government bringing down the prices of oil, a populist demand that the opposition parties are going to town with. It may be noted that the Manmohan Singh-government had deregulated or freed petrol pricing from its control in June 2010. The Narendra Modi-government went further to free the diesel pricing in October 2014. The Modi government has allowed revision of prices on daily basis since mid-June last year to reflect changes in cost instantly. But then the fact remains that the price we pay to buy petrol or diesel is twice the price we import them from the international market (which at present is in between 70 to 75 US dollars per barrel). We pay the high price because petroleum is the taxation milch cow for the central and the state governments and it is unlikely to be brought under the GST any time soon, though the central government is in its favour. I bet Arvind Kejriwal in Delhi, Mamata Banerjee in Kolkata and the Communist government in Kerala will ever bring down their share of taxes even if the petrol costs more than Rs. 100 /- per litre.
Given all this, it is understandable why the Modi government is laying so much emphasis on alternate or non-traditional sources of energy such as nuclear, solar and wind etc. Technologically speaking, the world is seeing three major trends in the energy sector. One is the “hydraulic fracturing”. The second is the use of solar energy from photovoltaic(PV) cells, also commonly referred to as “solar panels”. The third is the wide-scale distribution of batteries, not only for the use of electric vehicles, but also for application in micro grids and for other uses.
Hydraulic fracturing, popularly known as “fracking” in oil and gas extraction , involves the use of high pressure and fracturing stimulation– and horizontal drilling, in order to access oil and gas reserves in shale and other formations. By pressing water, sand, and other materials into promising geological layers and rocks, small fractures emerge through which oil and gas are released and can be pumped to the surface. However, this technology is being used gainfully in only one particular part of the world – North America, the United States in particular. It is picking up in China, but it is way behind. There are three main reasons for this state of affairs. One, the regulatory factor in other parts of the world is proving to be very difficult, particularly in the areas of environmental clearance and taxation matters. Two, the technology needs heavy investments, which many countries find prohibitive, particularly when petroleum can be bought much more cheaply as things stand today. Three, services and material related to the fracking are mainly available in the United States.
In the case of India, we have another major difficulty with fracking, even though according to the Ministry of Petroleum and Natural Gas, the “country holds promising reserves of shale gas and oil resources.” And that is the factor of water. In North America, fracking requires less than one percent of the locally available water for the extraction of natural gas or oil; but in the case of India, studies say that the Cambay Basin, Gondwana Basin, KG Basin, Cauvery Basin, Indo-Gangetic Basin, Assam and Assam-Arakan Basin – all considered prospective from the shale oil and gas point of view – will require more than 50 percent of regional water resources for complete shale extraction. We simply cannot afford that much water when “the Composite Water Management Index report” from the NITI Aayog has said that the country is facing its “worst” water crisis in history and critical groundwater resources – which account for 40% of India’s water supply – are being depleted at unsustainable rates.
In contrast, solar energy holds better potentials for India. As with the global trend, India produces more solar power with each passing year. In fact, it expanded the solar-generation capacity 8 times from 2,650 MW on 26 May 2014 to over 20 GW as on 31 January 2018. This figure, initially targeted for 2022, has been achieved four years ahead of schedule, a rare achievement. The country added 3 GW of solar capacity in 2015-2016, 5 GW in 2016-2017 and over 10 GW in 2017-2018, with the average current price of solar electricity dropping to 18% below the average price of its coal-fired counterpart. As the International Energy Agency (IEA) has confirmed in a report, PV now constitutes the largest part of all additional electricity generation, easily surpassing coal, wind, and natural gas. No wonder why India plans to make renewable power account for 40 percent of its total installed capacity by 2030, from 20 percent currently.
However, it may be noted that installed capacity is not the same as generated electricity. Compared to fossil or nuclear power plants, solar power plants feature greater discrepancies between capacity and actual electricity generation. Therefore, the share of solar as a part of global electricity consumption will not increase as quickly as the installed capacity. Secondly, China is the biggest player on the market today, with 60 per cent of global solar manufacturing capacity being located in China. The Chinese government has massively supported the building up of a PV manufacturing industry, protected the market, and concentrated global production in the region. It has literally made manufacturers of the industry in the US and Europe bankrupt. Even Indian industry faces the pinch. So much so that the Modi government is contemplating to impose a 25 percent duty on imports of solar cells and modules from China for one year to try to counter what it sees as a threat to domestic solar equipment manufacturing.
At the moment, over 90 percent of solar panels and equipments are imported by India from China since these are becoming cheaper and cheaper. Ironically, with these cheap equipments, India is producing more solar power; that means when the equipments become costlier to support the indigenous industry, solar power generation will be affected adversely. Thirdly, as is the case all over the world, the integration of more solar energy into the electricity systems will put grid operators and national electricity companies under stress. On the one hand, they will be forced to invest in additional measures to maintain high levels of system stability. On the other hand, they will lose revenues if they do not own solar capacities themselves. This, in turn, may eat into the revenue streams of electricity suppliers and force them to either charge customers more in order to finance their fossil investments or take political measures to keep solar off the grid.
The Chinese domination is also a problem in the sphere of battery revolution. The ability to store electricity in batteries on a large scale has long been one of the big dreams of mankind. For highly polluted cities in India, batteries will provide perhaps the cleanest energy for transport( electric cars). But then, industrial battery development is primarily enforced by only a couple of states, particularly China. And this geopolitical factor will play a negative role until and unless there are indigenous alternatives. The government has big plans to encourage the electric cars on the Indian road and for this some Indian companies are collaborating with Japanese firms like Nissan. Be that as it may, power through batteries is a long term goal.
What all this means is that there is no easy alternatives to the fossil fuel. India will continue to depend on petroleum products for many years to come. That means that we have to depend on a stable international market for our growing oil needs. And this stability depends on our capacity to deal with the geopolitics of oil – our relations with the Gulf countries ( our main sources of import – Iraq and Saudi Arabia; this region is also home to 7 million Indian workers) on the one hand and Iran ( our third largest source of import; also our principal transport-link with Afghanistan and
Central Asia, besides being the global leader of the Shias who in India are considered more liberal than their Sunni counterparts) on the other; and our ability to diversify the sources of imports from countries like Russia on the one hand and the USA on the other( last October, the Modi government created history by receiving 1.6 million barrels of American shale oil at Paradip port). This geopolitics is a complex game and needs a separate treatment in another
column. But, for the time being, this much can be said that in Dharmendra Pradhan India has a petroleum minister who understands this geopolitics well and is acting accordingly.
By Prakash Nanda