September 26, 2020
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Can Oil Imports Make India Aatma Nirbhar?

According to US Energy Information Administration, India has the 2nd largest proven oil reserves in Asia-Pacific region but, so far the production is done only at 5 locations.

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Can Oil Imports Make India Aatma Nirbhar?
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Can Oil Imports Make India Aatma Nirbhar?
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2020-09-03T22:36:08+05:30

India the 2nd most populous nation and the 7th largest country by area in the world has to procure 82% of its petroleum based requirement, making it the 3rd largest importer of crude oil after China and USA. According to Petroleum Planning & Analysis Cell which is the data keeper of Oil Ministry, the country imported 270 Million Metric Ton of crude oil valuing $120 billion in 2019-20. The amount is nearly 500% more than the average value of exports made by India in the corresponding year. Such a scenario shrouds mystery over the nation’s capability to safeguard its energy security, which is a must for any country intending to grow its economy because currently the crude oil accounts for more than one-fourth share in our total import basket.

Three decades ago during the Gulf War of 1991, India ran out of foreign exchange needed to import petroleum products and had to mortgage gold to overcome the crisis. This step had further ramifications like the devaluation of rupee, which made imports more costly. To prevent any future crude shock, India has successfully developed 3 Strategic Petroleum Reserves at Visakhapatnam (Andhra Pradesh), Mangalore and Padur [Karnataka] while a 4th one at Chandikhol (Odisha) is under construction, providing a total fuel storage capacity of 5.33 Million Metric Ton or enough to suffice 10 days of consumption. But, in reality only half of this capacity has been filled as other than UAE’s National Oil Company, no other Gulf country has come forward to contribute. This reality poses as a joke in the face of Indian oil industry’s executives.

After having linked the domestic prices of petrol and diesel to global fluctuations under the pretext of reducing the loss incurred by India’s oil marketing companies, the cost of fuel has become unbearable for middle class Indians constituting a large chunk of population.

In June’20 the fuel prices increased 20 times in a row touching Rs 80 per litre. This is due to the fact that more than 60% of India’s crude oil requirement is fulfilled by Iraq, Iran and Saudi Arabia, who are presently facing various crises ranging from civil war to political instability, affecting their output of mineral oil extraction. These countries also have considerable say in Organization of Petroleum Exporting Countries (OPEC), a cartel that controls the global crude oil market and influences the foreign exchange reserves of oil importing nations like India.

One of the prime reasons in steady weakening of Indian currency is over-dependence on import for crude oil and natural gas. Since these are procured by making large payment in dollars, so the government and RBI have to ensure sufficient availability of foreign currency by selling local currency in international foreign exchange market. Aggressive purchase of foreign currency leads to devaluation of rupee and ultimately affecting the purchasing power of Indian residents.

More the depreciation of rupee, greater will be rise of commodity prices leading to inflation. This is where the importance of domestic production, strengthening of indigenous industries and import substitution comes in picture. If a nation is largely self-sufficient, its foreign exchange reserves would steadily grow as imports would be limited, leading to decrease in price of goods and services required by the populace, thereby enabling easy procurement and contributing to better way of living.

In such circumstances, one is compelled to analyze the performance of Ministry of Petroleum and Natural Gas, as well as India’s public and private sector oil and gas exploration enterprises like ONGC, Oil India, Reliance Petroleum and Essar Oil. As per India Brand Equity Foundation, government sponsored resource centre that provides accurate information on Indian economy and business opportunities in India, as of March 2020 the country is the 2nd largest crude oil refiner in Asia. This means our refineries are functioning at full capacity. So why it is that fuel prices are drilling a hole through the pocket of consumers?

The demon lies in the detail. If we ramp-up domestic exploration, which is very much possible then cost of input to refineries would come down, reducing the cost of final product. According to US Energy Information Administration, India has the 2nd largest proven oil reserves in Asia-Pacific region but, so far the production is done only at 5 locations namely Barmer district of Rajasthan, Gulf of Khambhat (Gujarat), Mumbai High Sea, Godavari-Krishna Basin and in Assam.

The data available from Energy Statistics 2019 report of Ministry of Statistics & Programme Implementation mentions that Kutch district of Gujarat, Cauvery basin (Tamil Nadu), Mahanadi basin (Odisha), Hugli basin (West Bengal), and offshore location in Bay of Bengal, on eastern Continental Shelf have known occurrences of oil and gas but commercial production is yet to be established.

If one takes into consideration the total geographical area of resource-rich Indian sedimentary basins on western and eastern coasts, it turns out to be far greater than of Persian Gulf, which is a global oil and gas hub. So what is it that prevents us from extracting our own resource?

Despite of permitting 100% FDI in oil and gas sector, the response from international players has been rather passive. Some experts say that owing to fragile ecosystem of Eastern Ghats and Mangrove forests along deltas and gulf of Indian coast, exploration becomes a challenging task. This issue can be addressed by partnering with foreign firms like Petroteq Energy, a Canadian company known for its proprietary technology for soil remediation during oil extraction that does not lead to release of greenhouse gases or leaves behind any kind of waste. There exists a consortium of Environmentally Friendly Drilling System Industries, who collaborate with explorers to address environmental and societal aspects of oil & gas extraction.

Other than this, India has rich resource of Coalbed Methane (CBD) in and around the Chota Nagpur plateau. Industries producing fertilizers and cement that need clean fuel for their energy requirements can be provided with direct access to this resource. This would reduce the demand for LNG’s import, further decreasing the overall cost of petroleum purchase.

Hence by inviting overseas collaboration in extraction, making effective utilization of Hydrocarbon Exploration & Licensing Policy (HELP), which grants uniform license for exploration and production of all forms of hydrocarbon, along with optimum utilization of sedimentary and continental blocks with due consideration for environment, the nation can become self-reliant in sourcing its energy requirement. This would have beneficial effect in terms of strengthening national currency and improving our economic status globally.

 

The writer is a Design Engineer based in Gujarat. He has also been associated with the Society of Automobile Engineers (SAE), Pune. Views expressed are personal.


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