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India’s Energy Demands, Production and Consumption

India’s Energy Demands, Production and Consumption
India’s Energy Demands, Production and Consumption
India’s energy consumption is on rise. It is ranked fourth in 2009 amongst the largest global consumers behind USA, China, and Russia.

Brief overview

India’s energy consumption is on rise. It is ranked fourth in 2009 amongst the largest global consumers behind USA, China, and Russia. It is a fact that Indian economy is growing at a very slow pace but it has not affected the rising demand on energy side. India imports energy for its domestic use although its self-production is also considerable.

A report by IEA states that most of the energy production depends on hydrocarbons, whereas oil and coal also plays a significant role in this regard. Near two-third of total energy in use is delivered by Coal and oil. New gas deposits are under exploration phase, the existing ones meet about 7% share of energy. India also produces electricity by combustible waste and renewable. It includes biomass like dengue and firewood, which is used by over more than 800million Indian population for domestic cooking purposes. Nuclear energy generation makes up to one percent share whereas the other two percent share is met by renewable sources comprising of hydroelectricity, wind, solar, and geothermal. Above 400 million people in India have little or no access to electricity and majority of these people live in rural areas.

Energy consumption in India 2009 statistics by IEA shows following trend:

Coal:                                                                        42%

Combustible renewable and waste:               24%

Oil:                                                                           24%

Natural Gas:                                                           7%

Other renewable:                                                  2%

Indian Oil Sector

The proven oil reserves in India are estimated to be around 5.7billion barrels as of 2011, according to OGI (Oil and Gas Journal). India ranks second in Asia Pacific after China for its proven oil reserves. In 2010 India produced crude oil around 750 bbl/day. Since the production is relatively flat as compared to the rising consumption demands, therefore India depends on imports to meet oil and petroleum demands. It is the fifth largest net importer of oil. Indian oil imports account for about 70% of total consumption that is near 2-3 bbl / day. The main oil imports to India come from Middle East. The major exporters are Saudi Arabia and Iran. Some issues with payment processing and transfers led to a decrease in oil imports from Iran.

ONGC is the Indian state owned Oil and Natural Gas Corporation that dominates the Indian Oil Sector. It is the major oil producer in India and in 2009 and 2010 it accounted for about 66% of total oil production in India. The Indian Government is making policies to promote private and foreign investments as well in Indian oil production and exploration sector. Reliance Industries is India’s largest oil company that comes from private sector. There has been an increase in private sector investments in oil sector of India and this trend is gradually showing good progress.

Indian government is striving hard to reduce its import bills as a net oil importing country. It is looking forward to develop such policies that could help flourish the domestic companies’ involvement in exploration, development, and production activities. Indian Ministry of Petroleum and Natural Gas announced new Exploration policy in 2000 to attract private investments in deep water drilling of oil resources. This policy allows international companies to keep full equity ownership in their oil and gas projects. This was a great incentive but still very few foreign companies are involved in Indian natural gas and oil exploration activities.

The Indian Oil Exploration Company is operating eight of India’s total twenty-one refineries that shows that the domestic downstream activities is also dominated in India by state owned companies. OIC controls above seventy-five percent of oil distribution and pipeline networks throughout India. The majority of the oil marketing companies are also state owned and in 1999 Reliance Industries was the only privately owned refinery in India. Since then Reliance Industries has gained major stakes in Indian oil and petroleum sector.

Oil Exploration, Production, and Refining

Mumbai High field located in North West of Mumbai is the largest offshore oil field in India. Crude oil reserves are also found in the offshore west regions and in the north east onshore regions of India. Rajasthan state and Bay of Bengal also hold significant oil reserves. ONGC regulates most of these oil and gas resources. Reliance Industries manages the operations of Krishna Godavari Basin Block D6 that is a significant gas play in this region. International investors are not so confident about certainties in reserve levels and they did not show much interest in the ninth biding round conducted under NELP framework in 2011 that gained majority bids from local Indian companies. According to the latest EIA estimates as published in the International Energy Outlook, the growth rate of Indian oil production will remain below 1 percent in coming two decades.

It is interesting here to note that Indian companies are also holding stakes and shares in international oil production and exploration. The ONGV Videsh Ltd(OVL) is the very active overseas. It is successfully working on oil and gas operation in fifteen countries. It is producing oil in Russia, Vietnam, Sudan, Syria, and Columbia. OVL is looking forward to increase the levels of output to 560,000 bbl/day from 150,000bbl/day by the end of March 2014.

India has acquired status of the fifth highest refining capacity in the world, a OGJ has mentioned in its recent report. There were around 21 refining facilities with a capacity to produce 4million bbl per day as of 2011. With a capacity to refine 1.24 million bbl/day, Reliance Industries complex at Jamnagar is considered to be the biggest refining complex in international ranking. This complex is established at northwest India in order to reduce the transportation costs and it can process various crude oil grades. Its processing capabilities are much more than other older refineries working in India. There is high probability of more and more investment influx in Indian refinery sector due to rise in demands noted in the region. According to experts, India will soon become a major competitor in refining petroleum products and may become the top exporters of these products in Asian market very soon.

Government has subsidized prices for its refined production in India, but internationally their rates are competitive and depend on international market rates. The subsidies given by government domestically costs above $20 billion yearly. Upstream National oil companies and government of India bear losses for selling the refined products domestically below international market rates. Gasoline prices were deregulated by India in 2010, but this did not affect the subsidy bill as gasoline hold relatively very small product demand share. Mainly, the subsidies go to diesel fuel, kerosene, and LPG that are mostly consumed domestically. The government has increased prices for these fuels, but the subsidies will cause a burden on Indian economy without giving a major relief to the OMC’s.

India deregulated gasoline prices in 2010, but this had relatively little impact on the subsidy bill, because gasoline represents a small share of product demand. Most of the support goes to kerosene, diesel fuel, and liquefied petroleum gas (LPG), these are used more widely by the country’s economically disadvantaged classes. In June 2011, the government announced price increases for these fuels ranging from 9 to 20 percent. While this controversial policy is expected to provide some temporary relief for OMC’s, both demand for these subsidized products and India’s subsidy burden is expected to grow in the near future.

Indian government has also realized the importance of building petroleum reserves in the country. It is a fact that India is a net importer of petroleum products and a strategic protection against any sort of supply delays or disruptions holds significant importance. Keeping this in view India is making three facilities as strategic petroleum reserves. These are expected to complete around 2012 with the capacity to reserve 40 million bbl of oil that constitutes 10 days’ supply on throughput basis to refinery. Refineries located near these facilities are Mangalore, Visakhapatnam, and Padur.

Natural Gas Resources In India

India holds around 40 Tcf of proven natural gas reserves, as mentioned by Oil and Gas Journal. These reserves are approximated as of year 2011. In 2010 the total production of natural gas by India was near 2 Tcf that is more than 50% increase as compared to production estimates of 2008. Krishna Godavari gas fields holds much significance but currently the bulk production is coming from Mumbai High Complex located in western offshore regions of India. Indian natural gas consumption in 2010 as estimated by EIA was around 2.3 Tcf that is more than 750 Bcf higher than the consumption estimates of 2008. There is an increase in demand for natural gas especially due to Power sector. The natural gas consumption in India is mainly required by the fertilizer and power sectors. Indian government is looking forward to establish an energy resource-diversification that will result in more and more production requirements of natural gas for energy consumption. Demand levels have increased to a very significant level as compared to the rise in production levels in past few years. India is a net importer of Natural gas since the year 2004 and the net importers are estimated to be around 430 Bcf in 2010.

Natural Gas Sector In India- Production and Imports

Indian state owned entities dominate the gas sector in India but their stakes are comparatively less than what they hold in Indian oil and petroleum sector. Privately owned company Reliance Industries is getting more and more involved in gas exploration and production in India as compared to other non-government companies, but still the ONGC production was more than fifty percent of total production of natural gas in 2009 and 2010. Reliance industries share in gas sector will definitely be increased in near future especially after the KG basin natural gas exploration find in 2010. Indian government further supported offshore gas sector development by approving a joint venture worth $7.2 billion between BP and Reliance Industries.

The government of India regulates the prices of natural gas in India by APM (Administered Pricing Mechanism). The statistics shows that the prices of gases given to OIL and ONGC by government of India in 2010 were doubled. Some customer categories are still receiving subsidized products. Mainly the Gas Authority of India Ltd. administers the transmission and distribution of natural gas in India. As of 2006, it has transmitted about eighty percent of total natural gas consumption in India through its above 4000 miles trunk pipeline gas transmission network despite the fact that foreign investments are welcomed in transmission sector. Reliance Industries investment has also been increased in transmission sector as it plans to transmit its KG basin gas to prospective market.

Mumbai High Complex field was responsible for majority of the natural gas production in India until 2008. The discovery of gas reserves in the Bay of Bengal changed the production statistics to a considerable extent. The D6 block KG basin gas fields that include Dhirubhai 1 and Dhirubhai 3 have massively increased the domestic supply. Reliance Industries operate these fields. The D6 block has an estimated gas reserves of 11.5Tcf. The production amounted initially nearly to 1.4Bcf/day of which 50% was supplied to gas-based power plants and the remaining half was consumed by fertilizer, city gas distribution-entities, and LPG plants. In December 2009 the production reached a peak level of 2.8 Bcf /d. Due to some issues in field maintenance and pending infrastructure resolutions, Reliance Industries in 2010 decided to cap production at 2.1 Bcf/ day of KG basin D6 block. Experts and analysts expect these issues to be soon resolved by BP and Reliance as they are in partnership with each other.

India has also taken initiatives to work out more and more unconventional gas resources. The country has plans to increase the coal bed methane-gas production volumes. A recent study that was sponsored by EIA shows that Indian Shale gas recoverable resources amount to 63 Tcf.

India’s Electricity Generation

The installed electricity generation capacity of India in 2008 was approximately 177Giga Watts. The country’s main sources of electricity generation are conventional thermal sources. It is approximated to be around 80% of total electricity generation, the remaining supplies come from nuclear power, hydroelectricity, and renewable sources. India also imports electricity from Nepal and Bhutan and in agreement with Bangladesh as well for the same purposes.

India suffers sever energy production and supply shortages. Only 60% of the total population receives electricity, the rest of which are yet to gain excess to this utility. These are the World Bank estimations. Loadsheddings and blackouts are common occurrences in Indian cities. The demand is continuously on rise and this has further aggravated the situation drastically. The increase in generation capacity levels are far below the rising demands of electricity in India. Indian government is striving hard to add capacity but there are many issues such as market-regulations, coal shortages, lack of investment, and hurdles in getting approval for hydropower projects on environmental reasons.

India needs to expand its capacity for generating electricity by 234 GW, as its consumption will increase through 2035 per year by 3.3 percent. This increase in consumption rate was projected by EIA in IEO2011.

India’s generation capacity mainly depends on conventional thermal power generation. Above 80% of electricity was generated by thermal generation sources in 2008. About 70% of that comes from coal power plants, as India is ranked in the world as the third highest consumer as well as producer of coal. Due to low quality of coal India also imports metallurgical coal for its power plants. The 11 percent total consumption or 83million tons of coal was met by importing coal in 2010.

Natural gas is now playing significant role in electricity generation in India. According to an estimate by EIA, the total share of electricity generation in India by natural gas will increase to 16% in 2035 that was previously 11% in 2008. Indian government is conducting major natural gas exploration and production projects to enhance its power generation capacity to a considerable level.

India has also entered in to an agreement with USA in 2005 that will encourage civil nuclear trade between the two countries. This will also increase the current installed nuclear power capacity generation to 20GW by the end of 2020. Besides this India is also building 6 more reactors that could double the current generations through nuclear reactors. Currently India is producing 4.4GW through its 20 operational nuclear reactors.

Indian government is seeking for more diversification in power generation capacity. For this it has signed contracts with World Bank that will provide funds to develop various hydroelectric projects in the country. India will also focus on developing transmission networks throughout the country to make the electricity available to at least 20-30% of its rural population that is deprived of it even in 21st century.

About the author

Paul Morris

Paul Morris is an entrepreneur, consultant and author. He is an advisor at Xpert Automation, a tech-based business incubator focused on scalable startups, and founder of ContentFy.

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