India’s energy sector navigated a turbulent course in FY24. The year was marked by a confluence of headwinds – escalating global crude oil prices triggered by geopolitical tensions, disruptions in supply chains, and sluggish domestic oil production.
These factors exacerbated India’s dependence on oil imports, which reached a concerning 87.7% by February 2024, compared to 87.2% in FY23. Further complicating the situation were populist measures implemented by the government in the run-up to the general elections. Reductions in LPG cylinder and auto fuel prices, while providing temporary relief to consumers, squeezed the profit margins of state-owned oil marketing companies (OMCs). This squeeze was further intensified by a recent surge in global crude prices, reaching $87 per barrel. Analysts anticipate a return to daily fuel price revisions after the elections, reflecting the inherent volatility of the international oil market.
Compounding the woes of OMCs, domestic oil production witnessed a meagre increase of just 0.7% during FY24. This sluggish growth necessitates continued reliance on imports, exposing India’s vulnerability to price fluctuations in the international market. However, a silver lining emerged in the form of discounted oil imports from Russia, India’s top supplier. This strategic sourcing strategy helped bring down the import bill by a significant 17.6% to $120.8 billion for the April-February period. Recognising the limitations of an oil-centric energy mix, the government actively pursued a gas-based economic strategy. Key initiatives included the mandatory blending of compressed biogas (CBG) in compressed natural gas (CNG) and piped natural gas (PNG) networks, expansion of city gas distribution networks, and the establishment of additional LNG terminals. The objective is to increase the share of natural gas in India’s energy basket to 16% by 2030, from the current level of around 6.7%.
While the government’s push for gas is a positive step, a significant hurdle remains – the high cost of gas-based power generation. This high cost has dampened the enthusiasm of the power sector for capacity expansion in this segment. Despite this challenge, there are positive signs on the domestic gas production front. Analysts at CareEdge predict an additional 15 MMSCM (million standard cubic metres) per day of domestic gas production to come online in FY25. This, coupled with a projected decline in LNG dependence to around 45% by FY26, paints a cautiously optimistic picture for India’s future energy security. FY24 exposed the vulnerabilities of India’s import-dependent energy sector. While the government’s focus on a gas-based economy offers a promising path forward, navigating the challenges of cost competitiveness and ensuring a balanced energy mix will be crucial for India’s long-term energy security.
