India's Crude Oil Import Dependency Jumps Under Modi
(This is for information purposes only. This should not be construed as a recommendation or investment advice even though the author is a CFA Charterholder. Please consult your financial adviser before taking any investment decision. Safe to assume the author has a vested interest in stocks / investments discussed if any.)
(An update dated 02May2024 with new data is attached at the end of the blog)
Under PM Modi government, India's crude oil import dependency has jumped by 10 percentage points from 77.6 percent in 2013-14 to 87.5 percent in 2022-23.
It is hoped that India growth in future is going to be superior among the emerging markets (EMs). However, one of India's biggest weak points is lack of energy security and high crude oil import dependency.
Energy security is one of the most important things for any country. How is India doing on this front? We all know India is highly dependent on imports for crude oil. Government data show that India's import dependency for crude oil has been rising at alarming rates in the past decade.
Clean energy transition
Due to climate crisis and other environmental concerns, many countries across the globe have, over the years, rightly focused on non-fossil fuels and alternative clean energy sources as part of the green agenda.
The transition from fossil fuels to renewable energy is slow and tortuous, because renewable energy is more expensive though the prices of wind and solar power have come down in recent years.
Before we do a reasonably decent level of energy transition, the poor globally will have to pay a heavy price, as all goods and services will become costlier in the absence of cost-effective sources of clean energy.
In
recent years, the world has recognised the long-term use of fossil
fuels as many green / greener fuels have not lived up to the hype and
expectations.
For long, no new significant investments have been made in extracting fossil fuels or developing new oil fields due to a slew of factors -- like, encouragement of clean energy by governments, penalties on fossil fuel production, green taxes, banks' unwilling to lend to fossil fuel projects and others.
As argued by several experts, green energy transition may not be possible on currently available technology and oil is likely to continue with us for longer time than people expect. Poorer countries like India (on a per capita income basis) may still have to depend on fossil fuels for several more years.
As Europe stopped importing oil and gas from Russia, European nations, including the UK and Continental Europe, faced severe energy crisis last year, pushing up energy prices substantially for European citizens.
Combating
climate crisis and promoting global energy transition took a backseat
with soaring energy prices (Europe largely depended on Russian gas and
oil till early 2022).
Now, there seems to be some pushback against timelines of the green agenda. Last week, the UK prime minister Rishi Sunak announced the postponement of a ban on selling diesel and petrol cars from 2030 to 2035 -- the move has been criticised within the UK as well as outside.
India's import dependency
Last year, India could escape the fate of higher oil / gas prices in Europe, by importing crude oil cheaply from Russia -- benefiting immensely from the European boycott of Russian energy.
Higher oil prices now have put India in a delicate situation. As it is India's consumer price inflation (CPI) is at elevated levels for more than three years. A combination of factors have put pressure on India's fiscal deficit.
Indian consumers have been burdened with high fuel prices -- not only for petrol, diesel and liquefied petroleum gas (LPG), but also for other petroleum products.
Gains in the past from lower crude oil prices, between 2014 and 2020, were not passed on to end-users, burdening Indian consumers. Nobody knows where the gains have gone. Nor have the gains been spent on shoring up India's strategic petroleum reserves (SPR).
Under PM Modi government, pump prices for petrol and diesel have gone up substantially aided in part by higher taxes on these fuels.
As can be seen from table 1 below, India's crude oil import dependency jumped by 10 percentage points, under PM Modi government, from 77.6 percent in 2013-14 to 87.5 percent in 2022-23.
Why has PM Modi government failed to decrease India's import dependency and improve India's energy security? The answer lies in decrease in domestic crude oil production.
Crude oil output
Table 2 below reveals that India's domestic crude oil production fell by a staggering 22.8 percent from 37.8 million metric tonnes in 2013-14 to 29.2 million metric tonnes in 2022-23 (you can look at full data for the past 10 years in table 3 provided at the end of the blog).
Public sector undertakings (PSUs) have done less worse than their private sector counterparts. PSU oil companies output fell by 9.7 percent in the past nine years, whereas that of private sector fell by 48 percent.
Over the years, state-owned ONGC and Oil India have failed to ramp up oil output. Their combined oil output peaked at 29.8 million metric tonnes in 2004-05, and now slumped to 21.6 million metric tonnes.
Problems were created by successive Indian governments for private sector oil giants, like, Cairn Energy (now under Vedanta Limited) -- by imposing taxes over and above mentioned in purchase and production sharing agreements.
Renaming of previous government's policy for boosting crude oil output has not helped matters anyway. India's current federal government changed the policy name from New Exploration Licensing Policy (NELP) to Hydrocarbon Exploration Licensing Policy (HELP) in 2016.
Foreign players have shown little interest in oil exploration in India in recent decades due to capricious policies of successive governments, like curbing oil exports out of India from Cairn India's (now part of Vedanta Limited) Rajasthan block, retrospective taxation of Vodafone in 2012 and others.
Overall, the contribution of PM Modi government to India's energy security has been negative all these years.
To sum up, the policies of the present government have failed to stimulate new investments in increasing crude oil production.
In this setting it's interesting to note that India at the Glasgow Climate Change Conference in November 2021 pledged to cut its carbon emissions to net zero by 2070.
But before that, India needs a boat load of energy sources to increase its economic growth in the backdrop of India's aspiration to become a global giant at least economically.
India will have to tread a cautious and balanced path between its ambitious goals of net zero by 2070 and becoming a global economic giant. Unless the country achieves some sort of 'energy security,' it's not clear how it can attain its economic and global aspirations in future.
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P.S.: The following are added after the blog was written on 25Sep2023:
P.S. dated 02May2024: India's oil import dependency was 87.4 per cent during FY 2023-24, as per latest data from PPAC, a Govt of India body. The ratio was much higher compared to 77.6 per cent during FY 2013-14.
Additional data:
Table 3 showing India's crude oil output from 2013-14 to 2022-23 >
Tweet 12May2020 and image showing crude oil output from 1998-99 to 2019-20 >
screenshots from PPAC India's Oil & Gas Ready Reckoner - PDF for 2022-23
and Aug2023 monthly reckoner
Tweet thread (Posts on X) dated 03Jul2021
Tweet thread dated 12May2020
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Disclosure: I've vested interested in Indian stocks and other investments. It's safe to assume I've interest in the financial instruments / products discussed, if any.
Disclaimer: The analysis and opinion provided here are only for information purposes and should not be construed as investment advice. Investors should consult their own financial advisers before making any investments. The author is a CFA Charterholder with a vested interest in financial markets.
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