India’s growing economy and its increasing energy imports

By the year 2022, the UK will no longer be one of the

world’s five largest economies based on GDP in nominal terms, according to
International Monetary Fund (IMF) estimates published this week.

The world’s top five countries will include a newcomer –
India – which the IMF says will overtake Germany to rank fourth globally by
2022. This will push the UK down to sixth place, behind its European peer.

India’s economy is expanding at a rate of 9.9% per year,
according to the IMF projections. In contrast, the IMF expects the UK will grow
just 2.0% this year and 1.8% in 2018, impeded by the negative effects of
Brexit.

Crude

All this rapid growth will of course require energy. India
is expected to be the second-largest contributor to the increase in global
energy demand by 2035, accounting for 18% of the rise in global energy
consumption.

As India grows economically, this can only be good news for
shipping because the country is so dependent on energy imports – particularly of
crude oil. India ranks third in global oil consumption, after leaders USA and
China. The country imported 4.3m bpd of oil in 2016, up 7.4% from the previous
year. Of this figure, a record 473,000 bpd was bought from Iran, which has
become India’s fourth biggest supplier.

Indian consumption is expected to rise another 7.0% to 8.0%
this year, outstripping China's demand growth for the third consecutive year.
Meanwhile, domestic production of Indian crude remains low – just under 40m tpa
– in comparison with its imports. Given the millions of tons of refining
capacity added in recent years, we can expect India to build on its status as a
major refining centre, which will of course require more crude oil.

India has said it will decrease its dependence on oil
imports from OPEC producers. India’s state-owned Oil and Natural Gas
Corporation (ONGC) for one has acquired shares in oil fields in countries like
Sudan, Syria, Iran, and Nigeria. ONGC and refiner Reliance are exploring
domestic reserves, and an Iran-Pakistan-India pipeline has been proposed.

Coal

India has already halved its use of crude oil for power
generation, and is shifting its focus to generating electricity from nuclear
and renewable sources. That being said, its existing power stations continue to
use a lot of coal, although its huge
imports seem to be wavering. Year-on-year imports dropped 25% during December
2016.

India surrendered its
status as the world's top importer of coal back to China during 2016, having
imported just 194.9m tons
that year, a level 5.4% lower than in 2015. Despite the decline, India
is still importing almost four times as much as it did 10 years ago, and nearly
double the volume imported five years back.

India still has a little way to go in providing its regions
with electricity. As of March 31, 2016 (the latest figures available), 20
states and 6 union territories have reached 100% electrification, but another
20 regions still have yet to reach this level. Of these, eight areas still have
less than 95% electrification, the worst affected being Arunachal Pradesh,
which has just 73%.

Pollution has caused the Indian
government to turn away from building new coal-fired power plants.
Nevertheless, the International Energy Agency has said it expects India's coal
demand to rise by an annual average 5.0% by 2021. India’s import demand will no
doubt increase further if coal prices fall again – it’s no coincidence that
India imported less coal during 2016, a year in which coal prices rose sharply.

In January, India’s energy minister
claimed the country aims to “eliminate foreign coal dependency in the next few
years”. But commentators, such as the Delhi-based Energy and Resources
Institute, have observed that this pledge does not include imports made by
private companies. Plus, as we’ve stated, India’s coal consumption is HUGE and domestic production will have
to be ramped up drastically to reduce this dependence.

Domestic producer Coal India aims to
increase production by millions of tons per annum in the years ahead. But even
if does so, India will still need to buy coking coal overseas to make steel,
despite having the world’s fourth largest coal reserves.

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