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- GS3 || Science & Technology || Energy || Coal & Petrochemical
Why in the news?
As rising crude prices continue to swell India’s oil import bill, domestic crude-oil production is keeping up with its downhill trend. While successive governments have tried to reduce the country’s dependence on imported oil, no real effort has been made to arrest the constant decline in domestic crude-oil production.
India is the sixth largest primary energy producer country in the world. Most of India’s energymix basket comes from fossil fuels for instance coal, oil and natural gas. Coal is the chief source of energy in India.
With Crude Prices Low, why is Self-sufficiency Important to India?
- India is doing well, spurred by favorable climes and economic policies.
- The demand for oil in India is expected to peak in the long term, driven by rising income levels, growing demand from the agricultural and manufacturing services sectors, as well as the Indian government’s “Make in India”
- India’s demand for crude recently outweighed China as well, making it the second-largest consumer of the commodity.
- India’s spend on oil imports directly affect various macroeconomic factors, including its current account deficits, oil subsidies, and foreign exchange reserves, a butterfly effect that could trickle down and swell inflation, raise food prices, and so on.
- The nation needs to curtail foreign exchange spends in order to contain these factors while still maintaining the growth (and sustainability) of its current economic momentum.
Privatization of oilfields is a sure step toward self-sufficiency:
- India is serious about reducing its dependency on oil imports, it needs to improve domestic supply.
- Assam’s oilfields are among the country’s best hopes to achieve that, but the state’s apprehensions about foreign involvement in what could turn into an exploitative enterprise need to be addressed before any sort of deal can be struck.
- Given the circumstances, a joint venture between Indian PSUs with local roots and international players with technical expertise is one of the India’s most viable options to attain self-sufficiency in oil production.
India import of crude oil
- India ranks 3rd in the world for oil consumption amounting 4.81% of total world oil consumption.
- While India produces 1,016,370.64 barrels per day (approx.), India imports 82% of its oil consumption making the country more dependent on other countries and increasing more on Import bills. India spends $120 billion dollars annually to import oil mainly from Iraq, SAUDI, Iran, UAE, nigeria and other.
- Now due to falling crude price, India have gained some advantage in this destructive pandemic. The falling crude price have the ability to reduce India’s economic pain. Low price can help India raise oil-related taxes to offset other losses. It will further help India control its current account deficit and make the rupee stronger.
India imports 82% of its Crude oil:
- If we assume that someday India becomes self-sustainable and doesn’t imports any oil, then it would be very beneficial for India.
- It would not just reduce the fiscal deficit but also the inflation. India could further start trading the oil in ‘ruppee’ to strengthen the currency as the demand for US Dollar reserves reduces.
- The Indian Government is already working to reduce India’s dependence on Imports and increase domestic production by encouraging investments & development in the sector.
- Government have been promoting alternate fuels to further reduce the dependency on imports. If someday India becomes self-sustainable & doesn’t imports any crude oil, then it would be greatly beneficial for India. It could keep the Inflation numbers in favor & strengthen Ruppee against Dollar.
Crude oil reserves in India:
- India had about 750 Million metric tonne of proven oil reserves as April 2020 or 5.62 billion barrels as per EIA estimate for 2009, which is the second-largest amount in the Asia-Pacific region behind China.
- Most of India’s crude oil reserves are located in the western coast (Mumbai High) and in the northeastern parts of the country, although considerable undeveloped reserves are also located in the offshore Bay of Bengaland in the state of
- The combination of rising oil consumption and fairly unwavering production levels leaves India highly dependent on imports to meet the consumption needs.
What amount of crude oil does India produce?
- India produces a little under a quarter of its crude oil demand. According to the PPAC (Petroleum Planning & Analysis Cell), in fiscal year 2019 the country produced ~38,900 TMT (thousand metric tons) of crude oil.
- The total consumption for the year was 158,400 TMT. As a result, 77.6% of the requirement was fulfilled by imports. This trend continues to date. In November 2019, India’s crude oil production only accounted for 22% of its domestic consumption.
What is pushing the consumption of oil?
- Vehicles are increasing as people are becoming well off. Indian economy is getting strong, the opportunities for people are increasing, and the purchasing power of people have increased. More vehicles on road means more consumption of oil.
- In rural areas, major source of cooking food is with cow dung cakes and woods, but it causes great risks to health of the women. Thus, the government of INDIA has launched various schemes to provide LPG cylinders to these people at subsidized cost. So, as the people from rural background will use LPG cylinders, the demand will go upwards.
- The air traffic is rising considerably as a result increasing consumption of ATF( air turbine fuel)
- The Country’s largest oil producers like ONGC are failing to cope up with the increasing demand. Their inability to bring fresh big reserves into production lately has kept production stagnant
- PM has set an ambitious target of reducing imports to 67% by 2022. The government has unveiled new exploration policies for its oil and gas blocks lately, aiming to plug loopholes in its previous policies that encouraged only limited participation of resource-rich foreign oil companies and couldn’t dramatically boost the domestic output.
- India can become self-sufficient in crude oil in this century. It can reduce its import dependency by researching for new reserves and using the current reserves in the best possible way.
- Though if India will become self-sufficient in crude oil, the country will become economically developed. It would need to spend its Forex reserves on imports and it could be used for the development of other sectors of economy.
Today, most of India’s crude-oil production comes from aging wells that have become less productive over time. A lack of new oil discoveries in India, coupled with a long lead time to begin production from discovered wells, has led to a steady decline in crude-oil production, making India increasingly dependent on imports. The output of these ageing wells is declining faster than new wells can come up.India currently ranks 23rd in oil production globally. If the output increases, India will not only improve its ranking, but also manage to create a strategic reserves portfolio for itself. But the age of its oil wells is not on its side.