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Energy || Power Sector || Oil & Natural Gas
6.1 Energy is a critical input for economic development and the development experience all over the world is associated with a massive increase in energy requirement. The fifty years since independence have seen an expansion in the total energy use in the country with a shift from non-commercial to commercial sources. The use of commercial energy has increased ten fold over this period. Nevertheless, per capita energy use in India remains very low and growth in future requires a large increase in commercial energy. This calls for optimising the capacity to expand, domestic production of commercial energy and the ability to do so will be a crucial constraint upon future growth. Even with the best efforts in this area India will remain energy deficient and import of energy in the form of crude oil & petroleum products and also coal will continue. Efforts at managing energy demand through rational energy pricing will be especially important in the years ahead.
Non-Commercial Primary Energy Resources
6.2 Fuelwood is an important source of energy for cooking and heating in the rural and, to some extent, in the urban households. The total forest area in the country adds up to nearly 75 million hectares. The growth in use of wood for industry, construction, cooking, etc. has exceeded the annual incremental availability of wood from local sources and social forestry schemes. This has resulted in gradual deforestation with consequent adverse impact on the environment.
6.3 Fuelwood is supplemented by dung and crop residues in meeting the domestic energy needs in the rural areas. The annual availability of wet dung is estimated to be about 960 million tonnes. Greater use of dung cake as a source of energy reduces the availability of dung as a valuable organic manure. Total availability of crop residues is estimated to be 450-500 million tonnes. The draught animal population in the country has been estimated at 70 million and animal energy continues to be used in agricultural operations and for rural transportation.
Commercial Primary Energy Resources
6.4 India accounts for about 0.8 per cent of the total geological reserves and 5.7 per cent of the proven reserves of coal in the world. The geological coal reserves in the country are estimated to be about 205 billion tonnes compared to 196 billion tonnes assessed at the beginning of the Eighth Plan. The proven minable reserves are currently estimated at 72.7 billion tonnes as against 67 billion tonnes at the beginning of the Eighth Plan.
6.5 Since the Seventh Plan, considerable emphasis has been laid on the exploration of lignite especially in the States of Tamil Nadu, Rajasthan, Gujarat and Pondicherry. These States are located at a considerable distance from the coal fields. Lignite reserves are now estimated at 27.45 billion tonnes as against 6.5 billion tonnes estimated at the beginning of the Eighth Plan. The lignite deposits have been found suitable for power generation and are already being exploited for this purpose in Tamil Nadu.
Oil and Natural Gas
6.6 India has about 0.04 per cent of the worlds proven reserves of hydrocarbons. The prognosticated geological resources of hydrocarbons in the country are estimated at 21.31 billion tonnes, of which 61 per cent are offshore and 39 per cent onland. Out of this, the geological reserves established are, however, only of the order of 5.32 billion tonnes. It is assumed that half of the prognosticated resource represents natural gas, of which only 12 per cent has till now been established. As of the beginning of 1995, the balance of recoverable reserves are placed at 732 million tonnes of crude oil and 660 billion cubic meters of natural gas.
6.7 Based on a systematic survey carried out during the Seventh Plan, the hydro-electric potential in the country is estimated at 600 Bkwh (billion kilowatt hour) per year as against 472.15 Bkwh per year assessed earlier. This assessment of hydro power potential is provisional as further studies are in progress and the estimates could be revised. Out of the total potential available, nearly one-fifth has either been developed or is being developed. Apart from this, the Central Electricity Authority (CEA) had also undertaken extensive studies to identify the sites for the development of pumped storage schemes. Sixty three sites have been identified for this with a probable potential of about 94,000 MW. There exists another 6,780 MW of potential for exploitation through mini/micro hydel schemes. A number of such schemes are under implementation.
6.8 The country has uranium resources adequate to meet the life-time requirement of the first stage of nuclear power development programme of 10,000 MW. Apart from this, there are also large deposits of thorium available in the country. The present estimates show that the known deposits may yield 363,000 tonnes of thorium oxide. Thorium resources, when used through breeder reactors, may produce 900,000 Bkwh of electricity.
6.9 Table 6.1 gives the regional distribution of the primary commercial energy resources of the country. It is evident that the distribution of primary commercial energy resources is quite skewed. Whereas the Eastern region accounts for nearly 70 per cent of the total coal reserves the Western region has over 70 per cent of the hydrocarbon reserves in the country. Similarly, more than 70 per cent of the total hydel potential in the country is located in the Northern and the North-Eastern regions put together. The Southern region, which has only 6 per cent of the coal reserves and 10 per cent of the total hydel potential, has most of the lignite deposits occurring in the country.
6.10 In addition, there also exists the potential of coal bed methane, oil shale and gas hydrates in the country. As per the present estimates available the potential is placed at 850 billion cubic meters of coal bed methane, 6156 trillion cubic meters of gas hydrates and 600 million tonnes of oil shale.
6.11 A large potential of non-conventional sources of energy exists in the country. These include bio-gas, solar PV and solar thermal, bio-mass gasifier, wind power, small hydro power, bagasse co-generation, etc. Table 6.2 gives the present assessment of the potential of these sources and their status of exploitation.
6.12 Even though the size of primary commercial energy reserves appears fairly large, their availability in per capita terms is quite moderate on account of the large population of the country. If no significant additions to reserves are made in the future, the per capita availability is going to decline further in the wake of rising population. Table 6.3 gives the details of per capita reserves and reserves to production (R/P) ratios of some of the conventional sources of energy as well as the major implications associated with development of these forms of energy sources.
*Including Thorium Resources
Trends in Commercial Energy Production
6.13 Over the last five decades the country has taken major strides in stepping up the production of commercial energy as shown in Table 6.4.
6.14 Coal continues to be the main source of primary commercial energy not only for direct energy use in industry but also for indirect energy use through power generation. Concerted efforts made in exploration and development of hydrocarbons has led to a significant step-up in the production of oil and natural gas. However, in recent years, the production of crude oil has been stagnating. The hydro-electric generation has also increased significantly. There have been additions to nuclear power generation capacity as well as power generation from nuclear power plants. The wind power generation has also picked up significantly during last five years.
6.15 As shown in Table 6.5 the share of commercial energy in total primary energy supply has increased substantially from 28 per cent in 50s to 66 percent in 1996-97. The share of non-commercial fuels has declined from 74 per cent in 1950-51 to about 34 per cent in 1996-97. Fuelwood accounts for nearly 65 per cent of the total non-commercial energy consumed in the country. Of the indigenous primary commercial energy production, the relative share of oil and natural gas has increased from 1.2 per cent in 1950-51 to 27.9 per cent in 1996-97, the terminal year of the Eighth Plan. The share of coal which was 98% in 1950-51 has declined to 64.6 per cent in 1996-97. The changes in the pattern of primary energy supplies are shown in Table 6.5.
Changes in the Pattern of Primary Energy Supply (MTOE)
6.16 Fuelwood accounts for nearly 65% of the total non-commercial energy use in the household sector. In absolute terms, the consumption of fuelwood is estimated to be 161.4 million tonnes in 1996-97. The consumption of dungcake and crop residue is estimated to be 88.6 million tonnes
Primary Energy Imports
6.17 The country is not self-sufficient in oil and oil products and the import dependence of the country for oil has been increasing over time. The degree of self-sufficiency in oil which was around 35 per cent in 1975 has been increasing upto 1984-85 and was the highest at 70 per cent during that year. It has started declining thereafter in the wake of decline in indigenous production of crude oil and rising demand for petroleum products. In addition to POL imports, imports of superior quality coal are needed for use in the steel industry. Imports of coal touched the 10 million tonnes mark in 1996-97. A limited quantity of electricity of around 1.5 billion units per annum is also imported from Bhutan. As shown in Table 6.6 the share of primary energy imports in total primary commercial energy supplies in the country increased from 8.63 percent in 1953-54 to 25.28 in 1996-97. Import dependence of POL declined in the 1980s, because of the impact of Bombay High oil production but it has started to increase again in the 1990s as domestic oil production has stagnated.
Pattern and Growth of Final Energy Consumption
6.18 The total final energy consumption in the economy has increased from 84.5 MTOE in 1953-54 to 290.4 MTOE in 1996-97 at an implicit rate of growth of 2.91% per annum compound. The share of commercial energy in the final energy consumption has increased from 24.1% to 56.1% during this period whereas that of non-commercial energy has declined from 75.9% to 43.9 percent. The changes in the relative shares of commercial and non-commercial sources in the primary energy supplies and the shares of different sources in the final commercial energy consumption are shown in Table 6.7.
6.19 As may be seen from Table 6.7, the share of coal is declining in the final commercial energy consumption whereas that of oil & gas and electricity is increasing. Oil and gas accounted for nearly 54% of the total final commercial energy consumption in 1996-97. Since these figures relate only to final energy consumption, only the direct use of coal, oil and natural gas in industry, households, transport sectors, etc. has been considered. The use of these energy sources for indirect use through power generation is not included. Presently, about 71% of total coal consumption and 30% of total natural gas consumption is used for power generation.
6.20 Table 6.8 shows the changes in the relative shares of the different sectors in final commercial energy consumption over the years.
Energy Needs of a Growing Economy
6.21 The elasticity of total primary energy consumption with respect to GDP at constant prices works out to 0.78 as compared to 1.25 for commercial energy for the period 1953-96. The elasticity of total final energy consumption works out to 0.67 as compared to 1.14 for final commercial energy consumption for the same period. However, there have been changes in the pattern of consumption of energy over time as well as in the fuelwise elasticities. The changes in the pattern of energy consumption/GDP elasticities are shown in Table 6.9.
Energy Consumption/GDP Elasticities
6.22 There has been a declining trend observed in the point-to-point elasticity of energy consumption with respect to GDP in the decades of the eighties and the nineties. This has to be considered with due care since the past trends in the consumption of commercial energy do not really represent the growth of demand for such energy but merely reflect the growth of its actual availability in view of the prevailing energy shortages. However, a declining trend in energy consumption-GDP elasticity does include the increasing efficiency of energy use in the economy.
6.23 As may be seen from Table 6.7, the economy is progressively becoming oil-intensive in view of the increasing share of natural gas and petroleum products in the final commercial energy use. This is due to the increasing use of oil products in sectors like household and transport. The transport sector has become more oil-intensive on account of larger than anticipated share of road transport in freight and passenger traffic in preference to railways and a mushrooming growth in personalised transport modes like cars and 2-wheelers. The trends in the relative shares of oil products like LPG, SKO, MS, and diesel during the last three decades are shown in Table 6.10.
Share of LPG, SKO, MS and Diesel in POL Consumption
6.24 The share of the four oil products under consideration has increased from 54.9% in 1970-71 to 70.4% in 1996-97. If these trends continue in future as well it will give rise to severe balance of payments problems since all these products, except motor spirit, in addition to crude oil are imported at the margin. Increase in dependence on oil for meeting the final energy needs of the economy results in a heavy outgo of foreign exchange as is indicated in Table 6.11.
Long-Term Energy Scenario - Some Key Issues
6.25 Based on end-use analysis and past income elasticities, it is estimated that the requirement for primary energy is likely to increse from 374 MTOE at the end of Eighth Plan to around 475-500 MTOE by the end of the Ninth Plan i.e an annual growth rate of 4.9%. Of this, the share of commercial energy is expected to increase from 66 percent at the end of Eighth Plan to 75 percent at the end of Ninth Plan while that of non-commercial energy will decline from 34 percent to 25 percent. The annual growth rate of commercial energy is therfore 6.8%.
6.26 The energy import dependence is also expected to increase from about 25 percent at the end of Eighth Plan to 28 percent at the end of Ninth Plan. This raises the issue of enegy security. In view of stagnant domestic oil production, higher oil imports appear inevitable. Uncertainties regarding prices and availability make the developing countries like India more vulnerable than the developed countries. Both refining and marketing operations have been opened to the private sector. A new exploration licencing policy for making exploration and production competitive has been announced. The growing requirement of coal and the inability of the domestic production to meet this requirement may necessitate increased imports of coal even for power generation. Allowing the entry of private sector in coal production, without the captive consumption restriction, will go a long way in increasing the availability of coal.
6.27 The need for energy conservation and other demand management measures can not be over-emphasised. Some efforts are already being made in this direction. However, the results achieved have not been to the desired level. There is a need for R&D and technology development in this field also.
6.28 The demand for oil is increasing faster than the addition to hydrocarbon reserves in the country. The efforts made during the last few years by the oil industry have not yielded the expected results. There is a need for enhancing the pace of exploration and development in the hydrocarbons sector in order to add to the recoverable resources. Concerted efforts are required in this area through the adoption of better techniques of oil exploration. Similarly, adoption of latest technology would also improve the recovery from existing wells.
6.29 Indian coal is not of a very good quality as the ash content of the coal is very high. This not only leads to difficulties in utilisation but also generates larger quantities of fly ash, management of which becomes a difficult problem. Clean coal technologies are a must in order to reduce the detrimental environmental effects associated with high- ash coal utilisation. Also, there is a need for induction of improved mining technologies in order to mine coal from lower seams which will help improve the quality of coal.
6.30 The key issues facing India which have energy implications are, therefore, rising population, need for economic growth, access to adequate commercial energy supplies and the financial resources needed to achieve this, rational energy pricing regime, improvements in energy efficiency of both the energy supply and consumption, technological upgradation, a matching R&D base and environmental protection.
Investment on Energy Supply System
Energy is a capital intensive sector. Large investments are required to
be made for meeting the rapidly growing demand for energy from different
consuming sectors. The relative share of expenditure on energy
*Outlay ; @ Expenditure at current price at the base year of the respective Plans.
6.32 The share of energy sector in the total public sector outlay has been increasing over the various Plan periods with the power sector accounting for the major part. Further in the Ninth Plan, a major thrust will be given to infrastructure development, particularly energy and power, and public expenditure in the sector would be enhanced.
6.33 The principles of pricing adopted for energy products have greatly influenced the pattern of growth of the energy sector in the country. The economic implications of energy pricing are multi-dimensional. Firstly, they have a direct bearing on the efficiency of allocation of resources within the energy sector as well as in the overall framework of the economy. This includes the impact of energy prices on inter-fuel substitution. Secondly, the end-use efficiency in the sector is directly influenced by energy prices. Pricing of resources that are used in energy production is also important in view of the efficient use of these resources. Thirdly, the pricing system determines the viability of the sector and its financial autonomy. Finally, in a country where income disparities are wide, energy prices could lead to distributive implications unless adequate safeguards are built in.
6.34 Until recently the prices of commercial energy sources in the country were entirely administered. The basic approach was to arrive at a retention price that will permit full recovery of the average costs and allow a reasonable rate of return on the capital employed in the industry. However, this system did not always work in this manner and there was a tendency to under price both coal and petroleum. There is an urgent need for dismantling the administrative pricing regime. More recently there has been a move to deregulate energy prices and shifting to market-based pricing. Where subsidies are necessary, they should be transparent and well focussed.
6.35 There has been a growing concern about the subsidies, both direct and hidden. Fixation of administered prices is often done in not so transparent a manner and it also ignores sound economic principles on efficiency and sometimes on equity grounds. These subsidies have tended to be open-ended and have accrued to those who were not envisaged to be the real beneficiaries.
6.36 At present, over 60% of the oil requirement is met from imported sources. As a result, petroleum products account for the outgo of a large proportion of the total exports earnings of the country in foreign exchange. In 1996-97, India imported crude oil and petroleum products worth $9.3 billion (Rs.31,000 crore). The degree of self-sufficiency (measured as the ratio between indigenous production of crude oil and consumption of petroleum products in the economy in crude oil equivalent terms) is currently about 38 percent. The level of exports earnings will have to increase in a sustained manner to pay for the energy imports particularly in view of the increase in the requirements of oil products and near stagnation in indigenous production of crude oil.
6.37 Energy conservation has received considerable attention since the first oil shock in 1973. The Fuel Policy Committee (1974) and the Working Group on Energy Policy (1979) had laid emphasis on the need for energy conservation. The Report of the Inter-Ministerial Group on Energy Conservation in 1983 examined specific areas of energy conservation in different sectors. The Advisory Board on Energy (ABE) had recommended the setting up of a National Energy Conservation Organisation (NECO), backed by comprehensive legislation on energy conservation. The Petroleum Conservation Research Association (PCRA) under the Ministry of Petroleum & Natural Gas has done pioneering work in bringing about general awareness of the need to conserve the use of oil. The Department of Power set up the Energy Management Centre to undertake studies and suggest an action plan for energy conservation and more efficient use of energy. Energy audits are being carried out in a number of industries. There has been some improvement over the years in the efficiency of use of commercial energy in several sectors of the economy. Table 6.13 below gives the energy savings potential for some sectors in comparison with the international consumption levels.
Table 6.13 Energy Savings Potential in Selected Industries/Sectors India World ---------------------------------------------------------------------------------------------- Industry (GCal/Tonne) Aluminium 14.55 12.35 Steel 8 to 9.55 4.0 Cement 1.0 0.8 Transport (Saving (%) 80% per tonne km. If freight moved from road to rail Urban Transport For every 1 tonne of petrol Saved, 0.33 tonnes of HSD is Required (savings 67%) Agriculture Pump Sets 30% Domestic CFL Vs Filament lamp 76% ----------------------------------------------------------------------------------------------
6.38 The actual realisation of this potential will depend on policies including pricing both for energy products as well as for end-use equipment/devices and on institutional changes that take place in the energy sector.
Energy and Environment
6.39 Often, the use of energy is accompanied by adverse impact on environment and ultimately on the human health. Combustion of fossils fuels generates gases and contributes to atmospheric pollution. The major source of such pollution is fuel combustion in power plants and industry as well as in motor vehicles, which result in the deterioration of the ambient air quality. Inefficient chullahas in the household sector result in indoor air pollution which is damaging to the health particularly of the women. It therefore, becomes imperative that the future energy strategy should try to meet the requirement of energy ,particularly that of the poor without having an adverse impact on environment and in a cost-effective manner. Greater penetration by improved chullahs will help in achieving this objective.
6.40 Energy issues will have to be analysed more from the efficient end-use and service point of view rather than merely aiming at augmenting the supply. Such an approach would take into account the possibility of improvements in the efficiency of energy production and use so that it is possible to continue the growth process on a sustainable basis.
Energy Sector Reforms
6.41 The most recent series of policy changing in the Energy Sector were initiated in the year 1991 vide Industrial Policy Resolution announced in that year. The policy to promote private participation in the Energy Sector programmes is guided by the need for additional investment and competitiveness. Environmental management, protection & conservation of the natural resources has also emerged as a key priority in the reform process in the Energy Sector in functional terms.
Power Sector Reforms
6.42 The Power Sector Reforms included functional reforms in the form of investment promotion; structural reforms in the form of unbundling the existing vertically integrated monopoly and separate generation, transmission & distribution activities for rationalising their management; setting up of Central & State level Electricity Regulatory Commissions etc.. Various tax incentives, a certain assured rate of return to the investors have been granted. Liberalised tariff reforms for hydro electric projects have also been notified. This has been discussed in details in the Chapter on Power.
Coal Sector Reforms
6.43 These include permitting private sector in commercial coal mining by the required legislative amendments, offering coal blocks both for exploration and mining on competitive bidding basis, deregulation of coal prices, setting up of regulatory authority, re-structuring the coal sector by giving full autonomy to the various coal producing companies of Coal India Limited (CIL) and doing away with the concept of holding company, accelerating the efforts for exploration of coal deposits etc.
Petroleum Sector Reforms
6.44 Functional Reforms in the form of investment promotion have concentrated on private participation in upstream and downstream activities. Both refining and marketing operations were opened to private sector. A package has been formulated to attract private investment in the exploration of oil and gas which includes attractive fiscal concessions. A new exploration licensing policy for making exploration and production competitive has also been announced. Setting up of refineries in the private and joint sector have also been permitted. The structure reforms is being considered in the form of regulatory mechanism to a co-ordinated approach at the national level.
6.45 Along with promoting the role of market forces in the energy sector, this sector also has a role in promoting human and social development. This is particularly relevant in the Indian context where there exists considerable poverty, ill-health, illiteracy, etc.
Energy Strategy for the Future
6.46 The energy strategy for the future could be divided into short-term strategy, medium- term strategy and long-term strategy .The various components of short/medium term-strategy could be -
6.47 The energy challenges need to be tackled in such a way that social, environmental, economic and security problems are ameliorated and not aggravated, as is typically the case with conventional energy strategies which either ignore these problems or do not deal with them adequately. Therefore, in the medium to long-term, it is necessary to adopt measures that will reduce the energy intensity of the economy, some of which are listed below.
6.48 From the above, it is evident that the demand for energy registered a high rate of growth, contributed largely by the rising population, rapid urbanisation, increasing income levels, changing life styles and structural changes in the economy. To some extent, subsidised prices of certain forms of energy also led to end-use inefficiencies and, consequently to an increase in the energy demand. The development of some of these energy resources is also beset with serious environmental implications. In the sections that follow, the various sources of energy viz. coal, oil, electricity as well as issues relating to conservation etc. are dealt with in greater detail.
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