India's reliance on imported oil, natural gas grows on stagnant domestic production

• The country’s oil import dependency in April-September (H1) was 88.2 per cent, up from 87.6 per cent in the year-ago period and 87.8 percent for the full financial year 2023-24 (FY24), per latest data from the oil ministry’s Petroleum Planning & Analysis Cell (PPAC).

Highlights:

• In the first half of the current financial year, India’s dependence on imported crude oil and natural gas continued to grow. Data from the Petroleum Planning & Analysis Cell (PPAC) of the oil ministry shows that oil import dependency for April-September (H1) reached 88.2%, up from 87.6% in the same period last year and 87.8% for the entire FY24. Natural gas import dependency also increased to 51.5% in H1, from 46.8% last year.

Historical Trends:

• India's reliance on oil imports has been on a steady rise over recent years, except in FY21 when COVID-19 suppressed demand. Import dependency stood at 87.8% in FY24, 87.4% in FY23, and progressively lower in previous years.

Economic Vulnerability and Government's Objectives

Economic Impact of Oil Imports:

• India’s heavy dependence on imported crude oil makes it vulnerable to global oil price fluctuations, affecting trade deficits, foreign exchange reserves, the rupee’s exchange rate, and inflation. The government aims to reduce this dependency but faces challenges due to stagnant domestic production and rising demand for petroleum products.

Government Initiatives to Reduce Oil Imports:

• In 2015, India set a goal to reduce oil import reliance to 67% by 2022, but the target remains unmet as dependency has risen. The government continues to focus on reducing imports through policy measures to attract investments in oil and gas exploration and production. Key areas of focus include promoting electric mobility, biofuels, and other alternative energy sources.

Natural Gas as a Transition Fuel

Push for Increased Gas Usage:

• The government aims to raise natural gas’s share in India’s energy mix to 15% by 2030, from the current 6%. Natural gas is less polluting and typically cheaper than oil, positioning it as a key transition fuel. Despite the import increase, India encourages domestic production to limit import dependency.

Increasing Imports and Consumption:

• In the first half of FY25, natural gas imports increased by 23% to 18.98 billion cubic meters, costing $7.7 billion. The push for greater natural gas use aligns with environmental goals and the transition towards cleaner fuels.

Current Consumption and Production Data

Oil and Gas Consumption and Imports:

• India’s domestic consumption of petroleum products reached 117.7 million tonnes in April-September, of which only 13.8 million tonnes were from domestically produced crude oil, achieving a self-sufficiency rate of just 11.8%. Total crude oil imports rose to 120.5 million tonnes, up from 115.9 million in the previous year, with a 12% increase in the gross oil import bill to $71.3 billion.

Policy Efforts and Future Outlook

Incentives and Investment:

• The government has introduced policies to boost domestic production and reduce oil imports, including investment incentives for oil and gas exploration. Electric mobility, biofuels, and renewable energy sources are also promoted, though these efforts are not yet sufficient to offset the growing petroleum demand.

Challenges in Meeting Targets:

• While there has been progress in electric vehicle adoption and biofuel blending, these efforts alone have not curbed petroleum demand growth, highlighting ongoing challenges in reducing India’s reliance on imported oil and gas.

Prelims Takeaways

• Petroleum Planning & Analysis Cell (PPAC)