India’s BQ: Must Ensure Energy Security By 2025, Says Anil Agarwal
India has already initiated steps to secure energy, it only needs to accelerate the pace, writes Anil Agarwal.
This is a series of articles by leaders on how India can raise its Business Quotient.
India is rich in resources, in terms of abundant minerals, metals, oil and gas, and an enormous skilled talent pool. This unique, progressive combination is a driving force helping India move ahead among global peers in economic growth.
Before embarking upon our vision on Energy Security – 2025, let me quickly reflect on India’s energy landscape.
As per the BP Statistical Review of World Energy – June 2017, India’s primary energy consumption basket is skewed, with - 29 per of the demand being met by oil, 6 percent by gas, 57 percent by coal and just 2 percent by renewables.
India’s oil and gas production is on a decline. Exploration and development drilling is at record low levels, thereby posing future challenges.
As per the International Energy Agency’s World Energy Outlook 2016, India is set to be the largest source of future oil demand growth and oil consumption is set to increase by 6 million barrels per day. All projections foretell that most of this demand will be met by imports.
The report envisages that in 2040, India’s import bill for oil and gas would be $460 billion compared with $65 billion in 2015.
A decline in oil and gas production, together with record low levels of exploration and development drilling necessitates a fundamental step-change in the sector. We can’t afford the status-quo.
It is in this larger context I will like to present our vision.
Energy Security Vision 2025
Today India produces more than 70 million tonnes of oil and oil equivalent gas. By 2025, we should target to increase domestic production by more than 50 percent to over 105 million tonnes of oil equivalent.
This is an aggressive, visionary target. Do ground realities support this vision? It is very much achievable.
India offers tremendous untapped potential. Only 50 percent of the total sedimentary area is appraised and only seven out of 26 sedimentary basins are producing. India’s remaining recoverable resources are enormous ― in oil, 100 percent of tight oil and 99 percent of deep offshore are yet to be discovered. Similarly, for gas, it is 100 percent of shale gas, 95 percent deep offshore, 82 percent conventional onshore. Significant potential exists for improved oil recovery (IOR) and enhanced oil recovery (EOR) projects.
The domestic production of gas is set to increase due to numerous projects nearing their cycle time. Gas deserves a special focus in our energy security vision. Natural gas is a natural choice to deliver clean, abundant energy.
Moreover, it adheres to sustainability principles. Given the new reality, even imported natural gas offers an affordable, steady and reliable source of clean fuel.
The Government of India’s focus is to attract higher investments, ease of doing business and promoting the principle of ‘Minimum Government and Maximum Governance’. The government is conscious of the need to address energy security. Over the last three years, the government has taken series of policy liberalisation measures. It has initiated a fundamental shift in the oil and gas sector with the single objective of expeditiously increasing domestic production and minimising project delays.
Globally, many oil importing countries have scripted turnaround stories by increasing domestic production.
Given the factors listed above, the government’s resolve, and India’s dynamism, I am confident we can expeditiously increase domestic production and meet vision 2025.
Steps To Achieve Energy Security Vision 2025
The government has already set the momentum. As a next step, to stimulate investments and expeditiously enhance energy security, India should do the following within the shortest possible time frame:
- Take a bold, decisive step towards ease of doing business and adopt a self-certification based governance model for existing contracts. It will entail no-cost approvals / pre-audit of investments / oversight. This one step will reduce the administrative and regulatory burden, and considerably reduce the discovery-to-production time.
- Realign taxes on the upstream oil and gas sector to strike the right balance between risk and reward. India has one of the highest levels of production taxes (royalty and cess) even though it is one of the largest importers of crude oil.
- Incentivize IOR/EOR projects so that players are encouraged to deploy front line technologies to expeditiously enhance production.
- Just like other resources, adopt free trade to establish a fair price for Indian crude. Free trade will unlock more economic benefits & remove disincentives to production.
- The government is enhancing natural gas pipelines. Announce a special purpose vehicle with a clear mandate to expeditiously build natural gas pipelines.
At Vedanta, we share a common vision with the government. We are well-positioned to play an increasingly important role in future by enhancing our production significantly and deploying the best-in-class technologies to maximize India’s resource potential.
Our vision is to produce 50 percent of India’s oil production. In sharp contrast with global investment trend, we are set to increase our investments to achieve this target.
The Prime Minister has set his vision of reducing import dependence by 10 percent by 2022. In addition, the government has also set a target to raise the share of gas in primary energy to 15 percent. Dovetailing measures from the strategies discussed here could help achieve energy security vision 2025.
India has already initiated steps to secure energy, it only needs to accelerate the pace of change so that energy security vision 2025 becomes a reality.
Anil Agarwal is the Executive Chairman of Vedanta Resources.
The views expressed here are those of the author’s and do not necessarily represent the views of BloombergQuint or its editorial team.