India’s post-Iraq energy options

The remarkable success of the militant Islamic State of Iraq and Syria (ISIS) is a clear risk to India’s energy security. It can, over time, stop some of our supplies from West Asia.

India is the fourth largest consumer of energy in the world: we import 80% of our petroleum, of which 60% comes from West Asia.[1],[2] India’s refineries are mainly equipped to process imports of crude from the country’s biggest suppliers: Saudi Arabia, Iraq, Kuwait and Iran.

With the growing turmoil in the region, India must urgently explore more reliable and proximate sources of energy. A three-pronged approach is required: diversify the supply sources; diversify the type of fuel used; and focus anew on developing domestic sources of energy.

Right now, it is advisable to import more from Iran. Western sanctions have made importing difficult, but India has so far managed to side-step the sanctions. Prime Minister Narendra Modi must now put in place a system of oil importers, banks, insurers, and shipping companies to handle the trade with Iran and ramp it up at short notice, when necessary.

India has also been looking further afield for crude, especially from Venezuela and Canada, which together have over one-fourth of the world’s oil reserves (see Table 1). Both these countries produce heavy crude, which is particularly profitable for the large, export-oriented private sector oil refineries

Table 1: World’s largest oil reserves (2013)

	Proven oil reserves (billion barrels)	Daily oil production (000 barrels)	% Share in India’s oil supply (2012)
Venezuela	298.3	2,623	>10
Saudi Arabia	265.9	11,525	19
Canada	174.3	3,948	<1
Iran	157	3,558	6
Iraq	150	3,141	13
Kuwait	101.5	3,126	10
UAE	97.8	3,646	6
Russian Federation	93	10,788	<1
Libya	48.5	988	NA
US	44.2	10,003	0
World	1,687.9	86,808

Sources: BP Statistical Review of World Energy 2014

and U.S. Energy Information Administration

Venezuela is already an important supplier: it is India’s source for $14 billion worth of oil every year.[3] This trade can now be increased because Venezuela’s largest export market, the U.S., will reduce oil imports in the future by switching to home-produced shale gas.[4] Canada too is a future resource. However, India has little current investment in the country; only our public sector majors have made a start in Canada.

India must also move beyond oil and diversify its energy sources. Natural gas is one option—India already imports it as liquefied natural gas (LNG) from Qatar. The government-owned GAIL has led the way in locating newer sources—it has signed a number of agreements to import LNG from Russia and the U.S. Additional sources including Mozambique, Australia and Canada must also be tapped. Gateway House has examined these ideas in detail here and here.

Clearly, India’s natural gas options are greater than its options for petroleum, which is supplied by countries in current, or possibly future, turmoil. We pay more every time there is a flare-up in a volatile country such as Iraq or Nigeria. It is neither advisable nor sustainable to rely on this fuel.

Natural gas is cleaner than coal or oil, which is why it is used more by OECD countries (See Table 2). At current prices, it is also cheaper than oil (See Table 3) and can replace the use of crude oil in transportation. Transport fuels such as diesel and petrol account for 55% of India’s petroleum consumption. Indian cities, including Mumbai and Delhi, already have 1.2 million natural gas-powered vehicles.[5]

Table 2: Energy mix: India and OECD

                              Source: BP Statistical Review of World Energy 2014

Table 3: Prices of natural gas and crude oil

Source: BP Statistical Review of World Energy 2014

Heavy trucks, which account for the bulk of diesel consumption in India, must also be encouraged to use natural gas. To ensure this, India can work on a mix of legal measures, financial incentives, and concerted investment in natural gas infrastructure such as fuel stations, supply pipelines, and port infrastructure.

Whether it is oil, gas or coal that is imported, the final product is energy. Besides importing these raw materials, India also has the option to import one of the end products: electricity. Neighbouring countries like Bhutan—which Modi recently visited—are reliable energy import options. India will be increasing its investment in, and imports of, renewable hydropower from Bhutan over the next five years.

India pays under Rs. 1.5/unit for hydropower from Bhutan, less than half of what is paid by India to the Indian government-owned NHPC for hydropower.[6] This is a cleaner, cheaper and safer option, compared to other energy imports. Gateway House has looked at this relationship in detail here. A similar relationship with Nepal, which has the potential to produce more hydropower, will also be a safe source. Myanmar too is rich in natural gas; it is another option India can explore.

To secure these arrangements, the Indian public sector must perform a more active role. For this, it has to be released from political interference in the signing of deals. This can be achieved if the government of India fixes clear-cut policies so that commercial decisions are not questioned in hindsight.

Exploring new energy sources within India is also critical—the North East, for instance, which is rich in energy, has been neglected, as have eastern offshore oil and gas reserves.

Accelerating these measures with inducements for both domestic and foreign investors will open up new energy vistas for India, and ensure that the country’s future growth does not excessively depend on any one region in the world.

Amit Bhandari is Fellow, Energy & Environment Studies, Gateway House.

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[1] Energy Information Administration, U.S. Department of Energy, Country Analysis Brief Overview, <http://www.eia.gov/countries/country-data.cfm?fips=in>