Introduction:

India's energy sector is undergoing significant expansion to meet the growing domestic demand and the prime focus is on enhancing energy security, balancing domestic consumption and competing in the global energy market. This transformation has come at a time when the world is moving towards cleaner energy and sustainable options. How is the country going to deal with the critical decisions and how will this global shift move the country towards cleaner energy? In this article, we have explored different sections associated with the topic and let's begin.

The current status in the Indian energy market:

India is currently considered one of the fastest-growing energy markets in the world and is facing huge demand for crude oil due to its expanding economy and growing population. Therefore, there is a higher consumption of energy resources like coal, oil and natural gas. Russia faced sanctions due to its war with Ukraine and the global oil prices rose sharply. This condition has led to redirecting most of its exports including crude oil to Asian countries, including India which did not impose sanctions. Therefore India has been able to buy oil from Russia since then at discounted prices thereby increasing the imports from 950,000 barrels per day in June 2022 to about 2 million barrels per day by May 2023. These factors throw light on the fact that India relies on imports for 85% of its crude oil needs. Therefore it has to focus on other affordable sources.

India now is planning to boost its oil refining capacity which will eventually allow it to export their petroleum products. Utilizing the advantages such as rising domestic fuel consumption, and government incentives several Indian companies have expanded their refining operations in recent times. State-run companies are set to serve the domestic market and private companies are focusing on exports. Major oil and gas producers such as ONGC, Oil India Limited and reliance industries are actively in line with the strategy.

The Indian government has also made some adjustments to attract investments in the oil and gas sector. It has changed the rule that the companies had to sell crude oil to government-nominated buyers first. But now, the companies are free to sell crude oil to private buyers under commercial agreements.

The government’s Hydrocarbon Vision 2025 focuses on exploring 100% of the country’s sedimentary basins, up from the current 50%. There are myriads of reforms to boost domestic oil and gas production and investment. The Hydrocarbon Exploration and Licensing Policy has simplified the licensing process by offering a single license for all types of hydrocarbons and introducing a flexible revenue-sharing model to attract investors.

India planning to boost crude oil refining capacity by 35-40 MT by Fiscal 2030

India is right on track to significantly expand its crude oil refining capacity by 2030. The projected increase of 35-40 million tonnes is expected during the forecast period. This growth is in response to rising domestic demand for petroleum products. The growing economic condition and population are contributing to this rising demand for these petroleum products. Therefore India is aiming to meet this increasing demand, improve energy security and remain competitive in the global energy markets. Although the expansion will require significant investment it comes with a clear strategy to minimize the risks and maximize the returns, especially through brownfield projects.

The strategy is to make the majority of capacity additions as brownfield expansions, that is enhancing the existing facilities rather than building new ones. This strategy is expected to lower the project risks and ensure steady returns on the investments. In the past decade, India saw a capacity increase of 42MT where the exports remained steady and the domestic consumption has seen significant growth.

Now this expansion will not only enhance India’s energy security by meeting its domestic needs but will also solidify its position as a major player in the global energy market. This expansion is set to highlight the growing energy consumption patterns in developing economies like India, where industrial growth is linked to fuel consumption. The key question here is: how will the country balance the expansion with the global shift toward cleaner energy?

Domestic demand and its influence:

There have been some significant changes in the domestic usage of petroleum products during the past decade. For instance, the government has been aiming to focus more on blending 20% ethanol into petrol by 2026 as part of their effort to reduce reliance on conventional fuels.

The demand for petroleum products grew at a CAGR of 4% over the past decade and this growth rate is expected to slightly moderate to 3% over the next six years due to several external factors. The advent of fuel-efficient vehicles, and rise in the use of alternative fuels and push for the ethanol blending are all creating greater impact.

This demand growth is slowing but remains significant. These factors reflect a broader trend where emerging markets as they slowly transition towards cleaner fuels. These markets although have considerable demand for conventional petroleum products. Ethanol blending is a promising strategy, but the question remains: will it alone be enough to significantly reduce the emissions and dependence on fossil fuels?

Transport fuel dynamics:

Transport fuels like diesel and petrol make up about 56% of total consumption and that growth is significantly lower than the historical levels. This slower growth in adoption is due to the increasing adoption of electric vehicles and natural gas-powered buses. For instance, the diesel consumption is expected to grow at only 2-2.5% CAGR. Now the question remains: How quickly can India build the necessary infrastructure for EVs and will the costs of EV adoption be affordable for the masses, especially in a developing economy?

Naphtha and petrochemical growth:

In the petrochemical industry, the demand for naphtha is expected to grow at 6-7% CAGR. Additionally, the expansion of the petrochemical industry in India is expected to expedite its growth. Since Naphtha is utilized in producing plastics, chemicals and other industrial materials, the demand growth is held higher than the transport fuels.

This highlights the country’s growing industrial base and its ambition to become a global hub for the manufacturing and petrochemicals industry. However, naphtha is a fossil fuel product and questions long-term sustainability and the goal of reducing carbon footprints.

Brownfield expansions – strategy to reduce the project risks:

India’s growth in the area is to focus on brownfield expansions, which are enhancing the existing facilities instead of building new ones. This strategy helps in reducing project risks as it accelerates the development timelines and the approach makes economic sense as it requires less capital and infrastructure compared to the greenfield projects.

The strategy allows the companies to use the existing lands and facilities thereby minimizing the potential delays from land acquisition or regulatory hurdles.

These expansions are faster and more cost-effective ways of expansion and they also reflect a pragmatic approach to managing the risks in the volatile oil sector.

India’s position as a net exporter in the oil sector:

India is expected to reap huge benefits with the surplus refining capacity and strong domestic consumption. Although the fluctuations in global oil prices and demand from international markets are expected to affect this advantage the ability of Indian refiners is expected to remain competitive across the globe and remains crucial.

With the domestic oil demand growing, the country should balance its export-oriented refining capacity with meeting internal needs. A failure to do that could lead to supply shortages or over-reliance on imports in the future, despite growing domestic refining capacity.

Take away:

The Indian oil sector is all set and poised for significant growth due to the strategy of building refining capacity, deregulation and favourable governmental policies. However external factors such as geopolitical risks, volatility in the market and global shift towards sustainability are some factors that could influence its future trajectory. Therefore the country should carefully manage both domestic and international markets, diversify energy sources, and invest in technologies these factors are the key to sustainability and long-term growth.