India Energy Week: Rising demand for fossil fuel dominated the talks

Green energy was supposed to take centre stage at the India Energy Week, the ministry of petroleum’s flagship programme. Ironically, it was fossil fuels, coal in particular, that hogged the limelight.

The key number there is that India will shoot past 1 billion tonnes of coal production in FY24. This marks an impressive 11.6 per cent annual growth rate over FY23, something the country has never achieved. That serves to emphasise an impressive growth in India’s demand for fossil fuel as was evident in Prime Minister Narendra Modi’s speech at the inauguration of the India Energy Week. “Today India’s share in global oil demand is around 5 per cent but it is expected to reach 11. India’s gas demand is expected to increase by 500 per cent,” he said.

These are big numbers. Though the pace of energy transition to renewable energy (RE) and green hydrogen will also accelerate, there is, for the time being, a massive rush to create capacity in oil, gas and coal in India. In 2022, the sharp escalation in global gas prices had sowed deep doubts over how far it could remain a transition fuel in India’s energy mix, considering its share in the economy had come down to 6 per cent from more than 8 per cent in 2015. But Modi pointed out to the global energy sector leaders assembled in Bengaluru: “In the next 4-5 years, the gas pipeline network in India will reach 35,000 km. This means that huge investment opportunities are being created for you in India’s natural gas infrastructure.”

Supporting Modi’s statement on the role of fossil fuel economy, Sultan Al Jaber, UAE’s minister of industry, CEO of Abu Dhabi National Oil Comp­any and designated COP 28 president, said India was grappling with policies that held back emission and not progress. He described this position as an “inclusive energy transition”.

Paradoxically, India expects coal demand to shoot up precisely because of the introduction of electric vehicles to replace internal combustion engine-based ones that run on mostly imported oil. Coal Minister Pralhad Joshi had made this point last year at an investors’ meet. “The need for coal is going to double by 2040 with the rise in electric vehicles and the increased demand for electricity. Therefore, we need to ramp up our coal production to meet this growing energy requirement.”

What does this mean in terms of numbers for the coal sector in the near term? In a Parliament reply in February this year, the target for coal production has been fixed at slightly over 1 billion tonnes for FY24. Even if rake shortage and other usual supply-side challenges rear up, the target is likely to be achieved since the pace of increase till January is already above 16 per cent, according to coal ministry data. The ministry is particularly concerned that a hot summer should not create a crippling shortage of fuel at the power plants this year.

For next year, Coal India Limited (CIL), the country’s largest producer, has already identified 15 additional projects with a total rated capacity of 168.58 million tonnes (MT) annually for award to the mine development operators. Of these 15, a Letter of Award has already been issued to nine projects.

The coal entrepreneurs seem to have cottoned on to the fact that there is no doomsday arriving for the sector anytime soon. In the on-tap auctions for coal mines that the coal ministry has been running since June 2020, where there were often no bidders, a total of 99 bids for 36 coal mines were received for the fifth round of auctions in November 2022. “This is the biggest response received for commercial coal mine auctions,” the ministry noted in its website.

This has international implications. Energy consultancy CoalMint data shows India’s imports of thermal coal rose 15 per cent in calendar 2022 despite the domestic ramp-up in production. It has helped keep the prices of coal in the international markets high. Indonesia, from where India imports about 12 per cent of its domestic requirements, has targeted an export of 500 MT in calendar year 2023, a 10.6 per cent annual rise.

Nowhere is this more evident than in the demand for gas by India’s leading importers like Petronet and Gail. Akshay Kumar Singh, managing director of Petronet, told reporters at the India Energy Week that it wanted to secure 12 MT a year of additional supply under long-term contracts. “That’s equivalent to about 60 per cent of the nation’s deliveries last year, according to ship-tracking data,” noted Bloomberg.

Similarly the government has already cleared a Rs 35,000-crore support to the Ministry of Petroleum and Natural Gas as allocation for energy transition, net-zero objectives and energy security. Ministry officials said the sum would help them finance the cost of building environmentally better equipped refinery capacity to process crude. India’s current capacity is around 250 million metric tonnes per annum (MMTPA), which is being increased to 450 MMTPA under a vast expansion plan. While it is the oil marketing companies that will mostly finance the modernisation expected to cost Rs 1 trillion, the budget support will come in handy, they said.

Minister for Petroleum and Natural Gas Hardeep Puri made the same points in favour of the three dirty fuels at the event. “Unless we survive the present, we will not be able to go into the world of clean and green energy.” His prescription is that “while affordable traditional energy resources are essential for meeting the base-load requirements, new sources of energy, which are cleaner, sustainable, and innovative, are critical for combating the menace of climate change”. Expect more records in domestic coal production soon.