Asia Program

India's Growing Dependence on Energy From Abroad

Cover Story, Centerpoint, September 2008

Sep 01, 2008

India boasts one of the world's fastest growing economies. Along with this growth, comes a rapidly increasing demand for energy. India is currently the world's fifth largest energy consumer, and is expected to vault to third place by 2030—behind only the United States and China. But limited energy reserves at home have forced India to look abroad to satisfy much of this voracious demand for oil, natural gas, and coal. In fact, India's dependence on foreign oil is projected to reach more than 90 percent by 2030, according to projections from the U.S. Department of Energy.

Meanwhile, a recent report by India's Planning Commission projects that India must at least triple its primary energy supply and quintuple its electricity generation to maintain the 8 percent annual GDP rate needed to meet the New Delhi government's goals of poverty eradication and human development. In an effort to assess India's energy security policy, the Asia Program hosted a panel discussion on July 22, with assistance from the Global Energy Initiative.

Meeting Energy Needs
New Delhi's energy diplomacy extends from Central Asia to the Middle East, Africa, and Latin America, and has yielded various bilateral agreements and memorandums of understanding. Panelist Tanvi Madan, the Donald D. Harrington doctoral fellow at the Lyndon B. Johnson School of Public Affairs at the University of Texas-Austin, said India's national oil companies (NOCs) negotiate for energy access and development privileges around the world. She stated that these firms are sometimes accused of "exploiting concern" about energy insecurity to benefit their bottom lines. In response, New Delhi has sought to ensure that NOCs not only make profits, but also contribute to the economic development of the countries in which they have a presence.

India's international energy strategy incorporates: acquiring upstream assets; pursuing transnational pipeline projects; expanding bilateral supply contracts; procuring new technologies; and securing foreign investment.

Juli MacDonald, senior associate at Booz Allen Hamilton, discussed how India's overseas energy strategy relates to its foreign policy goals. Energy plays an enabling role in many of India's strategic relationships. While energy is "not the primary driver" of these relationships, MacDonald argued, it nonetheless "helps deliver other strategic or political interests." For example, for New Delhi, the proposed U.S.-India nuclear deal is less about energy security—the nuclear fuel it would provide would fall far short of meeting India's soaring energy demand—and more about strengthening strategic ties with Washington. Similarly, India covets a "more tightly knit" relationship with Saudi Arabia and attracting Saudi investment for local energy projects in India helps bring the countries closer together.

India is pursuing a diverse strategy toward addressing its energy security concerns. Domestically, India is reforming energy production, distribution, and consumption while seeking to attract foreign investment to help boost domestic production. Indian companies are pursuing strategies to help India become a regional supplier of refined products. To expand capacity, India is exploring increasing its use of nuclear power,
hydro-power, and alternative fuels. At the same time, India is promoting oil diplomacy as part of its foreign policy agenda. One such approach is to diversify its supply by securing access to hydrocarbon supplies from around the world.

India and China each are vying for a growing share of the global energy market. While some of their interests are compatible, some are conflicting, said MacDonald. Both countries can share technical expertise, but both are competing for supplies and influence with major producers. And, while securing open access to sea lanes is important, India and China have positioned themselves in sea lanes in the other's backyard: China in the Indian Ocean and India in the South China Sea.

The efforts of Chinese and Indian energy companies have a major bearing on American energy interests abroad. These companies are investing in countries where U.S. firms are absent or prohibited, such as Iran, Sudan, Burma, and Cuba, as well as in nations that are major crude suppliers to the United States, such as Canada, Venezuela, and Saudi Arabia.

India's Energy Security and the U.S.
How does India's global search for energy affect the U.S.-India relationship? Mikkal Herberg, research director of the Asian Energy Security Program at the National Bureau of Asian Research, said the issue generates several "vexing issues" for Washington-New Delhi ties.

One of them is India's energy interests in Iran, Sudan, Burma, and Cuba. Another is what Washington perceives as India's pursuit of a "mercantilist" strategy—a determined quest "to lock up" energy deals with anyone and by any means. India is seen as emphasizing ownership of energy resources instead of access to them—a violation of the market principles the United States seeks to uphold in the global energy realm.

However, despite these troublesome factors, Herberg asserted that Washington is actually quite supportive of India's overseas energy strategy, and often critical of China's—which in actuality is very similar to India's strategy. Herberg listed several reasons for this U.S. imbalance. China spends six times that of India on oil, he said. In addition, in terms of ideology, talk about China's rising energy profile gets caught up in larger "China rising" fears. And, India's overseas energy policies dovetail with U.S. strategic interests, because India's "energy rise" is regarded as a "possible counterweight" to China.

The Domestic Side
Ron Somers, president of the U.S.-India Business Council, reviewed India's domestic energy options. The country's two major resources are hydropower and coal. Both options, however, face obstacles. Hydroelectric development has caused the displacement of many Indians and led to quite a bit of public interest litigation. Coal, in addition to posing an environmental nightmare, presents logistical challenges. It is mostly found in eastern India, far from city centers, and transporting it to urban areas is difficult.

On the brighter side, Somers identified some recently discovered indigenous gas and oil reserves—30 trillion feet of natural gas found in the Bay of Bengal in 2003, and oil deposits uncovered in western India in 2004. He suggested that India's future oil and gas needs will be served better by these local reserves than by potential pipeline deals with Pakistan and Iran, and (separately) with Turkmenistan, Afghanistan, and Pakistan. Such transnational efforts, he argued, are fraught with too much political baggage to succeed.

All four speakers highlighted India's energy-driven close ties with some of the world's most repressive regimes. Yet the panel concurred India has no intention of altering these relationships. When the West criticizes India for cozying up to the world's Burmas and Irans, Madan explained, New Delhi simply responds the West is practicing a double standard. Indeed, Somers pointed out that Chevron, the U.S. oil giant, conducts business in Burma.

India's government takes its energy challenges quite seriously. As a testament to the significance of this issue, India's foreign ministry, known as the Ministry of External Affairs (MEA), recently formed an Energy Security Unit. This new actor, according to the MEA, was established "to support India's international engagement through appropriate and sustained diplomatic interventions." The Woodrow Wilson Center, mindful of the salience of energy in India, has organized additional programming on the issue in New Delhi this fall.

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