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As energy demand grows in India, the country works toward boosting energy development in hopes of reducing reliance on imports. The International Energy Agency has offered ways to overcome those challenges.
India has taken steps to boost exploration and development of hydrocarbons in hopes of luring companies as it struggles to meet growing demand.
But evidence that the country still may be on the verge of another crisis, if solutions aren’t found for energy and related infrastructure woes, are visible in a two-day July 2012 blackout that left nearly half of India’s population without electricity.
The country’s energy challenges are the focus of a report released recently by the International Energy Agency (IEA).
“India’s energy sector is increasingly unable to deliver a secure supply of energy amid growing demand and fuel imports,” according to the IEA report called Understanding Energy Challenges in India: Policies, Players and Issues. “In conjunction with a rising subsidy level and systemic failure to ensure proper revenue collection along the value chain, the financial capacity of energy sector players is significantly undermined.
Lack of sufficient capacity to make timely and adequate investments gives reason to fear that India is heading towards energy crises.”
Following China and the US, India had the world’s third largest energy demand in 2009. Demand more than doubled from 2,278 MMboe in 1990 to 4,779 MMboe in 2009, according to World Energy Outlook (WEO) 2011. The IEA predicts demand will continue to grow as the economy of the country, home to some 1.24 billion people, grows and its residents seek better quality of life.
By 2035, India’s energy demand could reach 10,457 MMboe, according to WEO. No source of fuel is predicted to decline; however, the largest demand growth could come from coal, expected to increase from 2,000 MMboe to 4,414 MMboe. Oil demand would jump from about 1.1 MMboe to about 2.5 MMboe. Natural gas would go from 1,885 Bcf in 2009 to 5,923 Bcf.
To help improve the situation, the country implemented the New Exploration Licensing Policy (NELP) in 1999, aiming to speed up exploration and development of hydrocarbon resources. Efforts include allowing international competitive bidding for exploration blocks and 100% foreign and private participation. The move was a contrast to previous methods of operations, which were more controlled by administrative orders from the Indian government, the report noted. The NELP now allows the production-sharing contract to serve as the managing instrument.
“A total of eight bidding rounds of NELP have been implemented since the first in 1999, with mixed outcomes,” the report said. “Through these eight rounds, a total of 326 blocks have been offered and 236 awarded.” More than 100 discoveries were made; however, only six have reached the start of production. A ninth NELP round is under way.
But more can be done to help move India closer toward becoming a well-performing energy sector, according to the IEA. The agency identified six challenges to target. As stated in the report:
• The capacities of players in India’s energy sector should be improved;
• Energy sector pricing mechanisms must ensure commercial viability and relay proper signals to the market;
• Significant investment is a must to meet growing energy demand and give citizens energy access;
• Improved bureaucratic and administrative processes are needed for energy projects to be finished on time;
• Energy policy should be integrated and consistent to serve as a guide for the country’s energy sector; and
• Handling obstacles of the energy sector requires strong political will.
“The oil and gas sector is highly liberalized to attract private investment and to increase domestic production,” IEA said in the report. “However, prices of petroleum products were only partly deregulated. The government, in practice, still determines retail prices for products considered to have social value through the ownership of oil companies. … The prices and allocation of natural gas are also de facto determined by the government. This has resulted in continuously declining interest of private and foreign investors in India’s oil and gas sector.”
The IEA emphasized a need for an overhaul of India’s energy policies, replacing it with a “comprehensive and clear-cut policy that encourages economic and social development through reliable energy supplies.
“Increasing import dependency exposes India to greater geopolitical risks, fluctuating world market prices and intensifying international competition,” the report said. “Indian energy policy cannot be set in isolation and needs to account for rising global interdependence, while simultaneously communicated appropriately to the public and reflected in policy debates.”
Shortages of coal, gas, oil, and other forms of energy are behind the electricity shortage negatively impacting the country’s economy and social development, the report said, noting these drawbacks are increasing reliance on imports.
“To effectively address these two trends, India needs a functioning energy market. In other words, [there needs to be] a system where national energy demand can be met by timely and adequate investment in a sustainable way, and business entities operating in the energy market are commercially viable,” the report explained. “These challenges should be addressed urgently by Indian policy makers, as the deteriorating energy situation can seriously weaken the country’s prospects for a robust national economy and improved daily life of its citizens.”
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