India's Oil Demand Doubling, Import Dependence Rising to 90 percent by 2040: IEA

India's oil demand will double to more than 9 million barrels a day, marking largest absolute consumption growth for any country, and its dependence on imports will rise to 90% by 2040, according to the International Energy Agency latest World Energy Outlook.

This means the Indian economy will continue to depend in the near term on oil or fossil fuels in spite of the government's stress on renewable energy and electric vehicles. This does not augur well as the suggested price trends in business as usual or stated policy environment scenarios do not offer much comfort on the price front in spite of subdued demand growth from other economies and rising exports from new players such as the US and Brazil.

Oil is one of the key elements of the government's fiscal math. Costlier fuel cramps government's fiscal room for social spending or stimulus as it disturbs macro-economic parameters by raising costs for consumers, farmers, transpor ters and manufacturers.

The report says a third of the growth in India's oil will come from trucks. Another quarter will come from passenger cars, with the Indian car fleet growing by a factor of seven between now and 2040. Use of oil as a petrochemical feedstock will contribute the remaining 15% demand. On the global stage, the Outlook sees the oil trade becoming increasingly centred on Asia, with China soon over taking the European Union as the world's largest oil importer and holding that position to 2040, despite the flattening of its oil demand in the 2030s. But this also poses a challenge as the growing concentration of trade flows to Asia increases the amount of oil passing through major global chokepoints, with implications for global oil security.

The Outlook also sees the influence of traditional players on the oil market waning, with the US output pushing down the share of OPEC countries and Russia in total oil production. This share drops to 47% in 2030, from 55% in the mid-2000s, implying that efforts to manage conditions in the oil market could face strong headwinds. Pressures on the hydrocarbon revenues of some of the world major producers also underline the importance of their efforts to diversify their economies.

The era of fossil fuel is not going to over now and there is already a disparity between the oil prices and the geopolitical situations, therefore, he would be surprised if the prices see any severe spike,' says Fatih Birol, Executive Director, International Energy Agency.

"Nex t few years based on the understanding of the current situation and the growth slowdown trend, it is unlikely that oil prices will see an extreme spike," he added.

"The calmness which we see in the oil market despite the recent challenges in the key producing nations -- like sanctions on Iran and Venezuela, attack on an oil facility in Saudi Arabia, and unrest in Iraq -, it is an indication of a disconnect between the price and geopolitics," he added.

On the supply side, Birol pointed out that a reason for this calmness could also be the availability of the American shale oil. Commenting on Iran's latest announcement of oil discovery, Birol said "All new investments will boil down to the price. A significant amount of oil at low cost without political challenges is available in the market."

Heavy Reliability from Middle East
The outlook states that "Whichever pathway the energy system follows, the world still relies heavily on oil supply from the Middle East. The region remains by far the largest net provider of oil to world markets, as well as an important exporter of LNG (liquefied natural gas). This means that one of the world's busiest trade routes, the Strait of Hormuz, retains its position as a crucial artery for global energy trade, especially for Asian countries such as China, India, Japan and Korea that rely heavily on imported fuel".

India Story
Talking about India story, the stated policies scenario given in the outlook says, India's net oil import requirements will more than double between 2018 and 2040 and its level of import dependency will reach roughly 90 percent making it one of the world's highest importer. It also says that India's reliance on impor ted fuels becomes a major factor in global trade and energy security.

The Outlook says that "Demand for natural gas has been growing fast as a fuel for industry and (in China) for residential consumers, spurring a worldwide wave of investment in new LNG supply and pipeline connections. In our projections, 70 percent of the increase in Asia's gas use comes from imports - largely from LNG - but the competitiveness of this gas in price -sensitive markets remains a key uncertainty."

In India, the prospects for natural gas are limited by supply constraints and affordability issues, as well as by the lack of infrastructure, it says. According to Birol, "India will be one of the major drivers for the gas demand in next 20 years." He expects this to put downward pressure on LNG prices. Most of the projected growth in electricity demand is met by a combination of renewables (especially solar) and coal, with gas confined mainly to a balancing role.

To meet their energy requirement consumers like India are playing around with their energy basket. The Outlook states that "Critical fuel choices hang in the balance. A three-way race is underway among coal, natural gas and renewables to provide power and heat to Asia's fast-growing economies. "

On Coal
As regards coal the Outlook states that "Coal is the incumbent in most developing Asian countries: new investment decisions in coalusing infrastructure have slowed sharply, but the large stock of existing coal -using power plants and factories capacity under construction worldwide, provides coal with considerable staying power in the Stated Policies Scenario."

Birol is clear when he says coal cannot be ignored in India context. But, he believes that India will do proper working towards low carbon resources.

India is the most significant overall source of energy demand growth in this year's Outlook, a cost-effective combination of cheaper battery storage and solar PV could reshape the evolution of India's power mix in the coming decades. India's renewable power investment has doubled over the past five years, reaching nearly USD 20 billion in 2018, and now exceeds that for coal power.

Ambitious targets, suppor tive policies with competitive bidding and falling costs have lowered risks for investors and led to reductions in power purchasing tariffs for utility-scale solar PV and wind. Better financing terms also played a key role, he said.