India is at the centre stage of world energy transformation. With continuous high GDP growth rate of about 7% for last few years, it is one of the fastest growing economies in the world. Adequate availability of energy is a critical requirement for sustained economic growth and successive Governments have been constantly pondered on ways to secure energy security of the country. With a population of 1.3 billion people which is continuously rising, the country will see a multi-fold rise in overall energy demand in future. India’s primary energy consumption which stands third in world order, is expected to quadruple by 2047. A huge share of increase in demand is expected from the rising urban population as every Indian aspires to live with better infrastructure and amenities in cities.
India relies heavily on conventional fuels to meet its energy demand. India Energy Outlook 2015 published by International Energy Agency reports that 44% Coal, 24% Biomass, 23% Oil, 6% Natural Gas, 2% Renewables and 1% nuclear sources were used to meet 775 Mtoe of primary energy demand of the country in 2013. The country is heavily dependent on imports for meeting its oil demand, which is on a steadily rising trend for the last 6-7 years. India imported around 82% of its total oil demand for the year 2016-17 in comparison to 80.9% in 2015-16 and 78.5% in 2014-15. Its oil import bill was $70 billion in 2016-17 which constituted about 21% of total gross import (in values). The same was $113 billion (28% in values) and $143 billion (34.5% in values) for the years 2014-15 and 2013-14, respectively. The reduction in import bill for year 2016-17 could be attributed to downward movement of oil prices from $115/ barrel in mid-2014 to a low of $28/ barrel in January 2016. Oil prices have seen huge volatility in the last 10 years and if the prices went high, it may put high import burden on exchequer.
194 Million Metric Tonnes (MMT) of petroleum products were consumed by the country in the fiscal year 2016-17. A consumption growth rate (CAGR) of 4.9% for last 10 years and around 7% for last 3 years is sign of a sound economy. High Speed Diesel Oil accounted for about 39.1% with LPG and Motor Spirit (Petrol), 11.1% and 12.2% of the overall consumption, respectively. Naphtha, Aviation Turbine Fuel, Kerosene, Bitumen and Petroleum Coke contributed shares of 6.8%, 3.6%, 2.8%, 3% and 12.1% to the overall consumption, respectively. Evidently, transport fuels account for nearly half of the total petroleum consumption, although some diesel also goes for industrial and other uses such as pumping in irrigation sector.
LPG consumption has recorded a growth rate (CAGR) of 7.1% for the last 10 year and 9.8% for last 3 years. There is a clear inverse relationship between Kerosene and LPG consumption with consistent reduction in Kerosene consumption at a negative growth rate of 5.5% for last 10 years. Consumption of LPG has increased by roughly 3 times in last 15 years whereas Kerosene consumption has reduced by half. The previous 3 years have seen a drastic drop in Kerosene consumption with a negative CAGR of 9%. The growth in LPG consumption captures the brighter side of India’s energy transformation. The reduction in Kerosene oil consumption signifies the impetus of the Government to push clean cooking fuels through schemes such as Ujjwala (PMUY) that has ensured LPG access to people living at the margins of the economy. A part of reduction in Kerosene consumption could also be due to lesser use of Kerosene for lighting due to increased penetration of electricity in rural areas. With increased government efforts such as cutting down the quota of Kerosene allocated to states and push towards LPG availability, not only cities like Chandigarh and Delhi but rural areas would also attain the ‘Kerosene Free Status’ in future.
Transport continues to be highest oil consuming sector and use of Diesel and Petrol grew at 5.9% and 9.9% in the last 10 years. The incumbent government de-regulated diesel prices in October 2014 to promote greater competition in auto fuels retail segment resulting in enhanced efficiency in service delivery of the oil companies. Nevertheless, the petrol and diesel prices before and after the de-regularization still correspond with each other (Rs. 63 and Rs. 52 in March 2015, Rs. 71 and Rs. 59 in January 2017 for Petrol and Diesel, respectively). The diesel price de-regulation is also not reflected in consumption trend as it has grown at a yet higher rate of 3.6% for last 3 years in comparison to 3.3% for last 5 Years. The present trend will affect initiatives to curb air pollution as while diesel as a fuel is more efficient due to high carbon content and better combustion efficiency, it also contributes to poor air quality due to more associated nitrogen oxides, sulphur dioxide, black smoke and particulate content.
Petcoke has seen fastest growth in consumption at a rate of 15.8% in last 10 years and about 26.1% in last 3 years. It has been used either as a primary fuel or replacement of coal due to its higher carbon content, in industries such as cement, steel, graphite, aluminium, rubber. For the financial year 2015-16, Petcoke replaced nearly 14 million tonnes of high-grade coal. The cost competitiveness of Petcoke is driven by crude oil prices crashing to a level of around $50/ barrel in the last 3 years. A large quantity of pet coke in country is imported, because of supply-demand gap created due to rising infrastructure development and demand from automobile, steel and cement industry. Another possible reason could be that it does not attract the clean cess of Rs 400/ tonne which is levied on coal.
The country aims at reducing 10% of total oil import by 2022 (over the 2015-16 consumption). Nonetheless, oil production in the country has been on a continuous decline since 2010 with no major fields achieving production after Barmer. Although policies such as NELP (New Exploration Licensing Policy) were introduced around two decades back to promote private sector investment and induct new technologies, the real transformation in industry has hardly taken happened. New policies and bidding rounds such as HELP (Hydrocarbon Exploration Licensing Policy) and DSF (Discovered Small Fields) have been introduced recently. But oil field development cycle is a long process (about 10-15 years for exploration to production stage), hence the real fruit of the current interventions could be realized only by the end of next decade (maybe in DSF sooner). As transport remains the most demanding sector for oil, the vision to bring about 100% electric vehicle sale by 2030 may reduce India’s import dependence by a big margin. Energy efficiency also remains a low- hanging fruit for reducing import dependence and energy consumption of the country.
A joint study by NITI Aayog and Rocky Mountain Institute, USA suggests that India can save 64% of anticipated road-based mobility-related energy demand and 37% of carbon emissions in 2030 by pursuing a shared, electric, and connected mobility future. This would result in reduction of 156 Mtoe in Diesel and Petrol consumption for that year and net saving of roughly Rs. 3.9 Lakh Crore (approximately $60 billion) in 2030 at present oil prices. A large share of public and non-motorized transport, and low personal auto- ownership in comparison to countries like China and USA create huge opportunity for introduction of electric vehicles in Indian Markets. The National Electricity Mobility Mission Plan launched in January 2013 aimed at electric/ hybrid vehicle fleet of 6-7 million by 2020. Everyday nearly 50,000 new motor vehicles (2-, 3- and 4-wheelers) register in India, with 10% increase in vehicle registration annually for the past decade. Yet the annual share of electric vehicle sale to total vehicle sale remains at very low level of 1%, with around 4 Lakh electric two wheelers and few thousand electric cars on Indian Road. Most of the electric vehicles in India are low speed vehicles where lead batteries are used to keep the prices low. The Government launched FAME (Faster Adoption and Manufacturing of Hybrid and Electric Vehicles) India Scheme on 1st April, 2015 with the objective to support hybrid/electric vehicles market development and manufacturing ecosystem. A total of 1,45,618 vehicles have been sold through this scheme which has resulted in 35,441 litres of fuel saving per day (As on 1st June, 2017). 95% of cars sold in 2015-16 under FAME were diesel mild hybrid on which around 57% of the total Rs 70 crore incentive was spent. There is only a nominal reduction of fuel consumption of around 10% for diesel mild hybrid over the base model, Hence 60% of FAME incentive has been associated mainly with marginal improvement to pre-existing technology. Barriers in wider adoption of electric vehicles lie in areas of consumer perception, efficiency of batteries, driving range, speed of EVs, charging time, creation of infrastructure for charging, battery recycling and technology development. The most important component - Li-Ion battery - is very expensive in country due to no domestic manufacturing making price of electric cars very high. Delinking battery from vehicles through battery swapping could be a way forward, but it demands creation of smart infrastructure of swappable batteries with pay-per-use business models, an extensive swapping-station network, and an integrated payment and tracking systems. In the absence of private consumer appetite due to high electric vehicle cost, public transport sector opens a huge opportunity for wide spread introduction of electric vehicles in India.
(Anurag Mishra is a Young Professional in the Energy Division)
Disclaimer: The views expressed in this blog are those of the author. They do not represent the views of NITI Aayog.