The Narendra Modi government had previously promised to reduce India’s oil imports by 10 per cent. However, its own data shows that between April and October 2023, India imported more oil than during the same period in the pre-pandemic year of 2019. While this worked out to India’s advantage in the aftermath of the Russia-Ukraine war and made cheap oil available to us, the Israel-Hamas conflict could hurt us.
The government has set laudable goals to enhance India’s energy security, but its lack of consistent follow-through could cost us now.
At a time when India’s dependence on imported oil remains overwhelmingly high, it makes complete sense to promise that we will blend increasing amounts of ethanol with petrol. It is also strategically sound to say we will expand our oil storage capacity.
But, while the commitment to ethanol blending is being sacrificed in favour of bringing down politically-sensitive food prices, the progress on expanding storage is too slow to be of any help in times of trouble.
Now, it’s nobody’s case that reduced oil imports should be achieved at the expense of India’s growing fuel demand. We are an economy that’s growing robustly, and our overall fuel demand will naturally increase. This is as it should be. The viable solution—not new, and not one the government is unaware of—is to reduce the crude oil component of this fuel and substitute it with ethanol and biodiesel.
Apart from environmental benefits, this approach also reduces our dependence on imports.
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Jeopardising energy security
The Russia-Ukraine war has played to India’s advantage as far as oil acquisition is concerned, but the Israel-Hamas conflict could hurt us. Houthi rebels in Yemen, in solidarity with Palestine, have been attacking ships trying to traverse the Red Sea. The Red Sea is critical to enter and exit the Suez Canal, a crucial sea-link connecting Asia and Europe-America.
Shipping companies have paused their activities in the Red Sea and are looking for viable alternatives. Bypassing the Suez Canal requires the ships to go all the way round the entire continent of Africa—meaning, a huge increase in costs and travel times.
Why does this impact India in particular? Because India has been importing about 40 per cent of its oil requirement from Russia at discounted rates. ThePrint reported last week how ships bearing oil from Russia might now see a 63 per cent increase in their travel times.
Now, India doesn’t have huge oil storage capacities. Our strategy so far hasn’t been to buy oil, store it, and then release it gradually when needed. Instead, we prepare for a constant flow of oil supplies. A delay in oil shipments from Russia, therefore, can place quite a strain on our reserves, forcing us to turn to other—potentially more expensive—sources of oil.
How does this connect to ethanol blending? Because it is through ethanol and biodiesel use that we can, over time, reduce our dependence on oil. The Modi government has set a target of 20 per cent blending by 2025.
The problem is that, in its now-trademarked knee-jerk fashion, the government in early December imposed a ban on the use of sugar for ethanol blending purposes, in an attempt to increase sugar supply for other uses and reduce prices. A week later, this was partially reversed—another government trademark—but a 17 lakh tonne limit was imposed on how much sugar can be diverted for ethanol production.
The government’s own Niti Aayog—in its Roadmap for Ethanol Blending in India 2020-25—has estimated that the country will need 60 lakh tonnes of sugar per year for blending purposes to meet its targets by 2025. The 17 lakh limit falls well short of this.
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Politics as means to control prices
The government has for a while now given priority to the urban middle-class’ shrill demands for lower food prices at the expense of farmers’ incomes. This has come in the form of export bans on wheat, types of rice, sugar, and onions.
Now, this blinkered view of only addressing the rise in prices of food items is coming at the expense of our energy security as well.
India already doesn’t have the capacity to produce the ethanol required for the government’s blending programme. We should be augmenting this, instead of periodically curtailing it because it’s politically expedient to do so.
As for oil storage, the situation is different. It’s not as if we are very short of storage capacity, but increasing it on priority would have placed us in a very comfortable situation right now, where we wouldn’t have to worry about the belligerence of Houthi rebels about 4,000 km away.
India currently has a storage capacity of 5.33 million metric tonnes (MMT) of crude, which the government said worked out to about 9.5 days of supply at 2019-20 consumption levels. In addition, the public sector oil companies have storage capacities totalling another 64.5 days. With higher levels of consumption, these reserves will likely last for shorter periods now.
This could work in an emergency, but significantly expanding capacity to, say, six months’ worth of supplies would allow us to greatly control how much we need to import during troubled times. The government announced back in 2021 that it would add 6.5 MMT of storage capacity, but it hasn’t come online yet.
We took smart advantage of the slump in fuel prices in 2020 and saved ourselves Rs 5,000 crore. If we had moved faster on creating more storage, we could have relied on those reserves when the prices subsequently rose sharply.
Our energy security is of prime importance. Indeed, if we manage our oil imports well, then we can even dampen the impact of at least one of the dual pressures of food and fuel on Indian price levels. Political considerations need to take a back seat, for once.
Views are personal.
(Edited by Prashant)