Date: 01/04/2023

Relevance: GS-3: Infrastructure: Energy

Key Phrases: Energy imports, disruption of oil supply chains, US-Saudi Arabia 1970s deal, High inflation, Petroleum crude, Coke and Coal, Steam coal imports, sedimentary basins, merchandise imports, domestic production.

Why in News?

• India's economy is the fifth-largest in the world and has been growing at an impressive pace.
• However, energy imports, including crude oil, coal, coke, LPG, and LNG, are estimated to grow by 43.6% in FY2023, accounting for 36.6% of India's total merchandise import bill.
• India’s energy import bill for FY23 is estimated to be $260 billion.
• If this trend continues, India's energy import bill could exceed $1 trillion by December 2026.

Reasons for the surge in energy prices:

• The disruption of oil supply chains due to the US sanctions on Russia post the Russian invasion of Ukraine.
• The weakening of the US-Saudi Arabia 1970s deal led to the dollar becoming the world’s reserve currency and leading to the sale of oil and currencies other than the dollar.
• High inflation in developed countries, including the US, Canada, Germany, and the UK.
• The US effort to create alternate supply chains excluding China.

Petroleum crude and products:

• Petroleum imports for FY2023 are estimated to be $210 billion, including
  • Crude oil of $163 billion,
  • LNG of $17.6 billion
  • LPG of $14 billion
• India imports crude oil from various countries (top suppliers):
  • Iraq ($36 billion),
  • Saudi Arabia ($31 billion),
  • Russia ($21 billion): Imports from Russia zoomed by 850 percent over last year.
  • UAE ($17 billion),
  • the US ($11.9 billion)
• India's crude imports grew by 53% over the last fiscal year.
• The price of crude oil imported from Iraq, Russia, and the US ranged from $90-92 per barrel, while that from Saudi Arabia and UAE ranged from $101-103 per barrel.
• India used its refining capacity to process part of the imported crude oil and exported products worth $96 billion, including diesel ($45 billion), petrol ($15 billion), and ATF ($16 billion).

Coke and Coal:

• Coal is a significant contributor to CO2 emissions and is the primary fuel for electricity generation for most countries.
• India's estimated coke and coal imports for FY2023 are $51 billion, with coking coal imports expected to exceed $20.4 billion, an 87% increase over the last year.
• The most significant addition is a rise in average import price from $250/tonne to $370/tonne.
• India imports about 60% of coking coal from Australia ($11.8 billion) and also imports from the US ($2.7 billion) and Singapore ($2.1 billion).
• Steam coal imports in FY2023 are estimated to exceed $23.2 billion, a 105% increase over the last year, with Indonesia ($13.6 billion) being the largest supplier.
• Other significant suppliers are South Africa ($3.8 billion), Australia ($1.7 billion), and Russia ($1.6 billion). The increase in imports is mainly due to the rise in prices.
• Country-wise price rise in 2022 over 2021-Indonesia — 22 percent, South Africa 49 percent, Australia 35 percent, Russia 46 percent.

Reducing energy imports:

• Exploration and Production:
  • India, in the 1980s, met 85 percent of its crude oil needs mainly from ONGC’s Bombay High offshore oil field, but now we import 85 percent of our needs.
  • India has 26 sedimentary basins divided into the following four categories:
    • Category I (7 Basins) — established commercial production;
    • Category II (3 Basins) — known accumulation of hydrocarbons but no commercial production as yet;
    • Category III (6 Basins) — indicated hydrocarbon reserves considered geologically oil-bearing;
    • Category IV (10 basins) — uncertain potential may be prospective by analogy with similar basins worldwide; and deep-water reserves
  • Crude oil and natural gas production in India is from category-I basins and deep-water areas.
  • Hydrocarbon discoveries have been made in Category-II basins, but commercial production is yet to commence. India must evaluate its options to increase local production.
• Focus on reducing coal imports:
  • There’s not enough scope for reducing the import of coking coal as India does not have high-quality reserves. But, the import of thermal coal can be managed.
  • Coal imports have increased mainly because of demand from new power plants that use only high-grade imported coal.
  • Issues that favour imports: An early resolution of the following issues will reduce the imports substantially.
  • The low quality (high ash content of 30-40 percent) of Indian coal
  • The inability of Coal India Ltd to increase production and use technology to increase the calorific value of coal
  • Within-country transport restrictions
• Import Bill:
  • India's merchandise imports for the fiscal year ending March 2023 are estimated to touch $710 billion, up from $613 billion in FY2022, an increase of over 15.8 percent over last year.
  • Containing energy imports will ensure that the overall import bill does not strain the current account.

Conclusion:

• India's energy import bill is growing rapidly, and it is essential to reduce imports and rely on domestic production.
• The country must focus on increasing local production, exploring oil fields, and managing thermal coal imports to reduce its dependency on energy imports.
• By doing so, India can improve its current account and become more self-sufficient in meeting its energy needs.
• India must take proactive measures to reduce its energy import bill to ensure long-term energy security and economic growth.

Source: The Hindu BL

Mains Question:

Q. “India's energy imports are expected to grow by 43.6% in FY2023 over the previous year.” In light of the statement, examine the factors contributing to the surge in energy prices, and suggest measures to reduce India's energy imports.