Dr. Mukesh Aghi
President and CEO
Contact Sukanya Sen
India, home to eighteen percent of the world’s population, uses only six percent of the world’s primary energy. This, however, is rapidly changing and the energy landscape in India is evolving like never before. The recent reforms undertaken during Prime Minister Narendra Modi’s first term, especially in the last mile delivery of services, have led to rapid developments in India, both socially and economically. India’s young demographic and large middle class are driving consumption of goods and services, which is inevitably increasing the demand for energy sources in the country. However, India’s dependence on imported energy resources and the inconsistent reform of the energy sector are challenges to satisfying rising demand. A 2017 report on the outlook of energy in India projected that India’s energy consumption will rise by 129 percent between 2015 and 2035. It also predicts that the country’s energy mix will evolve very slowly, with fossil fuels accounting for 86 percent of demand in 2035. Given this rise in energy demand, India will need to look towards other countries, like the US, to learn from their best practices and business models, and collaborate towards an energy-secure future.
The U.S. and India have always had a strategically and diplomatically important relationship, within which the U.S.-India energy relationship is currently at its best, and has the potential to expand tremendously. While visiting the U.S. in September 2019, Prime Minister Narendra Modi interacted with CEOs from the U.S. oil and gas sectors in Houston. This is a testament to the importance that both countries place on their budding energy partnership. During the meeting in Houston, PM Modi discussed how to harness opportunities in the area to address India’s growing energy needs, and highlighted the importance of working together for energy security and expanding mutual investment opportunities between India and the United States. In this meeting, there were CEOs from 17 global energy companies with a combined net worth of USD 1 trillion with a presence in 150 countries, including India.
The natural gas sector is a crucial element of India’s strategic energy policy. The Government of India wants to increase the share of gas in the country’s energy mix to 15 percent by 2030, from 6 percent at present. Increased Indian demand for natural gas can also promote increased bilateral trade between the U.S. and India, as U.S. liquefied natural gas (LNG) exports will help India meet its natural gas needs. The United States is a world leader in natural gas production, transportation, and distribution. Increasing natural gas use in power generation in India will help diversify fuel sources, improve air quality, and improve electricity system performance. As India moves to meet its renewable energy generation targets, flexible natural gas-fired power plants can provide critical balancing services to enhance grid stability. Making natural gas available in other sectors of the economy – industry, agriculture, transportation, and residential energy use – can reduce hazardous emissions, with positive health benefits and lower energy costs for users.
The U.S. and Indian governments have made significant progress in the natural gas sector. The U.S.-India Gas Task Force (GTF), convened under the U.S.-India Strategic Energy Partnership, seeks to support the Government of India and the U.S. Government in their respective goals of expanding India’s gas sector and promoting exports of U.S. goods and services. The GTF has identified three key themes that need to be addressed to expand natural gas use in India and trade with the United States – natural gas pricing, markets, and regulations; natural gas grid strengthening; and stimulating natural gas demand growth.
The bilateral partnerships in energy sectors extend to private and public sector companies in both countries. Earlier in 2019, Gas Authority of India Limited (GAIL) signed an initial agreement with ExxonMobil, the most valuable energy company in the world, to explore jointly supplying natural gas to power and transportation sector in India. The two companies are exploring the possibility of expanding gas business in India by supplying liquefied natural gas (LNG) to heavy goods vehicles as well as power plants. The Memorandum of Understanding (MoU) between the two companies shows ExxonMobil’s eagerness to participate in India’s natural gas sector and to capture opportunities that recent government policies and an expanding economy are expected to bring.
The success of U.S.-India partnership in natural gas sector can also be emulated in other energy sectors as well. The most attractive proposition for the near future is to help India develop a thriving coal gasification industry. As mentioned, India’s growing middle class is creating a demand for goods and services that drives demand for chemicals and petrochemicals. The ability to fulfil demand for petrochemicals will be critical to maintaining the momentum of India’s developmen, but in the absence of a domestic chemical industry, the country will heavily rely on imports. Imports of petrochemicals – essentially ‘oil equivalent imports’ – will place increasing pressure on the country’s current account deficit, causing it to widen, and put downward pressure on the Indian Rupee. An alternative to imports is to develop a domestic chemicals industry, taking advantage of indigenous feedstocks such as coal, lignite, and petroleum coke.
India can extract maximum benefits from its indigenous coal resources by developing a coal-to-chemical industry. India should leverage globally-available gasification technology, in which the U.S. is a leader, to fast track its development of this industry. U.S. gasification technology companies will be interested in investing in Indian gasification industry and taking on the technical risk for a reasonable return on investment. To attract private sector investment and global technology players to the Indian coal-to-chemical industry, the Government of India should consider providing incentives to make returns globally competitive for the sector. A policy push for coal-to-chemicals would need to be driven by feedstock supply security and attracting proven global technologies in coal gasification to make it competitive.
The outcome of a U.S.-India partnership in the energy space has the potential to affect the future of energy distribution in India, as well as impact the global supply and demand dynamics of energy products and services. This model of cooperation can also serve as an example for other sectors in the two countries to come together and work towards a common goal – development and prosperity.
The article appeared in Invest India.