Raise resources to produce, import fuels
THE New Year is upon us but it looks like past redux. A war that was predicted to be over within a few weeks has dragged on for nearly an entire year. China continues to be a troubled spot on the planet, moving from the disastrous zero-Covid policy to an even more disastrous relaxation of movement curbs. For India, the continuing adverse geopolitical environment has brought mounting challenges. The biggest right now is energy security. Not only are oil prices volatile, natural gas prices have shot up. Seasonal shortages in the availability of the most critical fuel used both by industry and for power production — coal — have also become endemic.
This is even as international pressure is growing to eliminate it in global environmental conferences like COP 27. Calls to phase it out have been criticised by emerging economies like India and China while developed countries are frowning on the resistance to such pleas. As for renewable energy, progress is undoubtedly being made but not fast enough to resolve the immediate crises.
There has been much western criticism of India’s reliance on coal for 72 per cent of its electricity requirements even though changes in the energy mix are not an easy option for the emerging economies.
But coal availability is now turning into a problem. With most of the country’s power plants dependent on coal supplies, it is essential to ensure that the logistics of transport from pitheads to power plants are seamless. Quite the reverse has been happening in recent times as battles between the railways, coal producers and power companies over mismatch in demand and availability are recurring. This happened again last year when extreme summer heat caused the demand to rise beyond expectations and domestic coal supplies fell short of the requirements. The only solution possible has been to raise coal imports while ramping up domestic coal output by the state-owned Coal India.
The higher demand for coal comes at a time when there had been a move towards reducing dependence on this fossil fuel. The power ministry had even directed states last year to cut down generation at 81 coal-based power utilities as a precursor to moving towards green energy.
At the same time, western nations began facing shortages of natural gas supplies from Russia. It is ironic that the same countries which have been demanding that India and China cut down on coal use are now reverting to the same fossil fuel owing to gas shortfalls. The consequent hike in global demand has meant that prices soared to record levels in 2022, making India’s coal purchases more expensive.
On the oil front, India was blindsided in February last year when the prices reached stratospheric levels after the war began in Ukraine. These moderated the rest of the year but the economy has had to grapple with prices ranging far higher than ever in the recent past. Oil markets are likely to remain volatile in the coming year, given the interplay of pressures on oil producers and consumers. This has prompted investment agencies to predict a return to $100 per barrel in 2023 despite oil prices having softened to a range of $80 to $90 in the past two months.
The biggest role in this context will be played by OPEC plus countries which have already cut production quotas by two million barrels per day from last November in a bid to push up the prices. As for the western nations’ efforts to impose a cap on Russian crude prices, it is not likely to be a success. One big reason is that Russia has threatened to stop supplying to countries involved in this plan, thus removing its oil from the market and pushing up the prices.
The only loser in this battle will be the emerging economies like India. Already, policymakers here are in a bind over the growing oil import bill which is putting pressure on the current account deficit. There is cause for concern as it has risen to an all-time high of 4.4 per cent of the GDP in the second quarter (July to September) of the current fiscal.
Natural gas prices are also rising rapidly owing to the higher demand from the European countries. With the reduction in Russian supplies from the two Nordstream pipelines, inventories are being filled by raising purchases of liquefied natural gas (LNG) from countries like the US. Though gas currently accounts for only about 7 per cent of India’s energy mix, the aim has been to double this to 15 per cent by 2030. LNG prices have shot up by nearly 50 per cent since the Ukraine war began so this target may be a far cry.
High prices are thus one of the biggest short-term problems for the energy sector. In the long term, however, renewable energy sources are expanding rapidly. Solar energy, for instance, accounts for about 7 per cent of the country’s power generation, with 60 GW of installed capacity. An ambitious target has been set of ensuring that half of the country’s electricity generation comes from renewable sources by 2030. This would mean that the installed capacity for solar power would need to rise to 370 GW, which is indeed a tall order.
Other renewables, including wind power, geothermal power and green hydrogen, also have tremendous potential. A national mission has been launched for the last one but technology is opening the doors to unconventional areas like tidal energy and offshore wind power. Electric batteries to power vehicles are also gaining ground in the marketplace.
But these are all in the future. For the short run, India has to focus on the conventional sources that make up the current energy matrix. Coal is clearly not the best option for the long run, given its potential to damage the environment. Yet, it will take time to shift to other fuels for power generation and even developed economies have had no compunction in using it as a fallback in the present era of energy shortages. Oil and gas may also be destined for a phase-out in the foreseeable future.
Right now, however, the country has no option but to find the resources to produce and import enough of these fossil fuels to keep the wheels of the economy running as fast as possible.
