India needs to cut energy imports

Chennai: India has to provide renewed focus on crude oil exploration and improving production capacity, technology and logistics facilities of Coal India will help the country lower its energy imports, which accounts 32 per cent of its total imports.

India's rising energy imports bill is a significant challenge, with energy imports making up 32.4 per cent of the country's total merchandise imports, amounting to $219.7 billion for FY 2024, finds GTRI.

India imported crude oil, LNG, and LPG of value $177.3 billion for FY2024. In the 1980s, India met 85 per cent of its crude oil needs from ONGC’s Bombay High offshore field, but now it imports more than 85 per cent of its requirement. The country will have to expand its strategic petroleum reserves to ensure energy security during supply disruptions. A renewed focus on exploration of its 26 sedimentary basins, many of which have not been fully explored, will help production.

Further, the country will have to reduce coal imports. India's coke and coal imports crossed $42.4 billion in FY2024. Coking coal is used for steel production and thermal coal for electricity generation. While reducing coking coal imports is challenging due to the low quality of domestic reserves, thermal coal imports can be managed.

The increase in coal imports is driven by the demand from new power plants that require high-grade imported coal as India has low quality with 30-40 per cent ash content. Coal India’s limited production capacity and technological constraints, and domestic transport restrictions has been one of the challenges. According to GTRI, addressing these issues can significantly reduce coal imports.

Simultaneously, India will also have to improve its power grid performance This will eliminate the need for high-emission captive power plants. Industries such as steel, cement, textiles, and chemicals install their own captive power plants to ensure an uninterrupted power supply due to frequent power outages and inconsistent electricity supply. These captive plants, typically coal-based or natural gas-based, contribute significantly to pollution and coal-based plants being particularly harmful.

Improving grid power will also have a beneficial impact on exports. Indian steel and aluminium industries, which are currently using captive power plants, would face higher Carbon Border Adjustment Mechanism (CBAM) taxes when exporting goods to the European Union. By transitioning to grid power, these industries can reduce their carbon footprint and avoid hefty CBAM taxes, making them more competitive in international markets.