India’s Severe Energy Problem Becomes a Crisis
from Walter Russell Mead's Blog by Walter Russell Mead
India is facing a serious energy shortage, reports the WSJ today.
Shortages of coal, oil and natural gas will require India to import increasing amounts of high-cost fossil fuels, say energy experts, risking inflation and putting the country in stepped-up competition with China, Japan and South Korea…
With annual demand expected to more than double in the next two decades to the equivalent of six billion barrels of oil, the energy crunch threatens to knock India off its growth path. The national economy has already slowed amid paltry business investment and stalled reforms. It tallied just 5.3% growth in the quarter that ended March 31, the lowest level in almost a decade and well shy of the country’s 9% goal.
A number of problems stifle domestic energy production: a shortage of domestic fossil fuels, restrictive regulations, infrastructure badly in need of repair. Across India, coal mines are starting to run out. Importing energy, the obvious alternative, costs more: “India’s efforts in April to strike a long-term gas supply deal with Qatar faltered over price, about $20 per million British thermal units, or more than triple the cost of Indian domestic gas.”
The situation today is not a pretty one. Power shortages are widespread and businesses suffer tremendously as a result. “Even in such business hubs as Delhi’s suburb of Gurgaon, companies employ backup generators because of regular outages. Factories are forced to curtail production.”
The government does not seem able to make things any better. ”Domestic oil fields are maturing, production is barely increasing and companies complain regulations are stifling. Cairn India Ltd, India’s largest private oil producer, said in March it might scrap a $6 billion spending plan after the government proposed an 80% increase in taxes on its production.” Many companies blame the government for delays in getting environmental permits. Meanwhile, India’s energy infrastructure is falling apart. Antiquated infrastructure and equipment badly needs repair, upgrades.
Removing the subsidies is a divisive issue in domestic Indian politics, almost impossible for any politician to suggest to his or her constituents, and thus impossible for the coalition government to implement at the national level. As a result, costly imported energy is the only short-term fix. “In all probability the import dependence in primary energy is going to increase,” said Mr. Ahluwalia of the Planning Commission. “The real issue is, ‘Can we pay for that energy?’”
Those higher prices will have to be passed on to consumers and businesses. Indians depend on the subsidies that keep cooking gas and electricity cheap. Even though global energy prices have been falling in recent months, the rupee is slipping against the dollar, which cancels out any gain India would have seen from low global prices.
But the energy problem is fast becoming a crisis. India will have to get much better about managing domestic production and consumption of energy. Even as the coal mines start to run dry, exploration and new production is strangled in red tape. Meanwhile, consumption is heavily subsidized — something voters depend on but which costs the government billions of dollars. And yet, those subsidized products are not widely or consistently available. As a result, businesses, healthcare, education, economic growth all suffer; the government knows this but seems unable to turn things around.
Something has to change, and change soon. |
