India's economic success will make it a decisive player in global energy for decades
About half way along the drive from Indira Gandhi International Airport, in New Delhi, to Connaught Place, in the city's centre, the smog and noise is already grating. Then comes the traffic jam near Sardar Patel Marg, where the thoroughfare crossing stretches for miles in either direction. Policemen do their best to usher vehicles along, but with limited success.
These problems will worsen—not just in India's capital, but across the country. The middle class is growing, people are getting richer and more are buying cars. Opec forecasts that the number of vehicles on India's roads will grow sevenfold, to 141m, by 2030.
The government thinks it has a three-pronged strategy to deal with the ever-increasing congestion—and the hefty growth in fuel demand that will come with it. It wants India's vehicle fleet by 2032 to be electric—that's prong one. It's also going to build more roads. And to clean the air, new fuel-quality rules are coming into force.
India is at the centre of a worldwide energy transformation. With consistently high GDP growth—around 7% for the past few years—the decisions taken now will have huge implications: for its citizens' health, for the efficiency of the economy, for Indian industry, and for international firms lining up to supply all the energy India needs.
Although GDP growth has been bumpy lately—thanks to the recent demonetisation policy and the introduction of a goods and sales tax—the longer-term picture has been one of startling success. It started in the early 1990s, when then prime minister PV Narasimha Rao kickstarted a phase of economic liberalisation, ending the licence-permit era and curbing government intervention in business. Reforms allowed for economic growth.
The policy opened up the country to the global economy. It discouraged public-sector monopolies and brought competition into India's market. Multinational companies arrived.
A burgeoning population, rising incomes, a manufacturing expansion coupled with booms in telecoms and the automobile, and a vibrant IT sector, remain major factors behind the economic growth—and drivers behind both the surging demand for fossil fuels and the matter of extending electricity to a fast-growing population.
Indian energy consumption has grown at a compound annual rate of about 6% during the past decade—and isn't about to slow much. BP expects India's energy demand to rise faster than any other major economy between now and 2035; growing by a whopping 128%.
The investment needs are just as great. India's petroleum minister Dharmendra Pradhan said recently that his country needed $300bn spent on its energy sector over the next 10 years. The money would increase domestic production of crude oil and natural gas, and expand the refining and transport sectors. It will also include spending in biofuels, production of which the government also wants to encourage.
As the traffic jams from the airport show, transport is a key segment. According to the International Energy Agency, India's oil demand will rise more quickly than any other country's by 2040, soaring from 6m barrels a day now to 9.8m b/d. But gas demand will also surge, hitting 72bn cubic metres a year by 2021, or average annual growth of 7%.
These are enticing numbers for exporters targeting India, whose energy imports are steadily rising alongside its economic expansion. India met about 82% of its total oil demand for the year 2016-2017 with foreign crude, up from 81% in 2015-2016 and 79% in 2014-2015. Despite the collapse in oil prices, it still spent $70bn in 2016-2017 on these imports, or about a fifth of its total import outlay.
Liquefied natural gas exporters, depressed by the global surfeit of their product, can also cast a hopeful eye in India's direction. Its LNG imports should rise by 10% annually over the next few years, surpassing 30m tonnes a year by 2020, compared with 19m t/y in 2016. Although the government's policy is to reduce its total energy imports, economic growth, combined with India's climate-change policies, and the plans to electrify both the country and its transport segment, will inevitably yield more demand for cleaner-burning natural gas.
But much remains to be done if more gas is to reach the country. Despite the expansion of LNG capacity, India has no international piped gas imports. A Russian pipeline has been mooted. A proposal to pipe gas from Turkmenistan through Afghanistan and Pakistan, and another link from Iran, have also been mentioned.
Much, in other words, can change in India's energy sector in the coming years. But one constant seems obvious. The country's fast-growing economy and more prosperous population are set to be a new and decisive force in global oil and gas markets for decades. Energy progress, the government hopes, will move more quickly than the traffic along Sardar Patel Marg.
This article is part of a report series on India. Next article is: Help at hand in India