Electricity and natural gas in India: an opportunity for India's national oil companies.

• Author: Cox, Pierce T.

1. INTRODUCTION II. ELECTRICITY AND ENERGY SECURITY IN INDIA A. Using Coal to Generate Electricity in India B. Alternatives for Generating Electricity in India C. Using Natural Gas to Generate Electricity in India III. INDIA'S NATIONAL OIL COMPANIES A. Indian Oil B. Oil and Natural Gas Corporation C. GAIL Limited IV. CHOOSING SOCIAL POLICY OR ENERGY SECURITY V. THE CHINESE NATIONAL OIL COMPANY MODEL A. Chinese NOCs: Reducing State Influence B. Chinese NOCs: Securing Adequate Supply C. Chinese NOCs: Developing Infrastructure VI. A WAY FORWARD FOR INDIA'S NATIONAL OIL COMPANIES A. Increased Transparency B. Acquisitions C. Developing Infrastructure D. Contract Stability VII. CONCLUSION We are energy secure when we can supply lifeline energy to all our citizens irrespective of their ability to pay for it....

   --Planning Commission, Government of India (1)

1. INTRODUCTION

   Electricity in India is "one of the key drivers for rapid economic growth and poverty alleviation." (2) The Indian government recognizes electricity as a "basic human need." (3) The goals of India's National Electricity Policy include providing power to all households and meeting the demand for electricity in full. (4) The Policy has met with great success with regard to delivering electricity to India's population, in terms of both increased power generation capacity, as well as transmission capability to deliver the electricity generated: in 2001 44% of the Indian population did not have electricity, but by 2012 only about 25% of the Indian population was without electricity. (5) As of December 2013, India had installed electrical capacity of 232 gigawatts generating electricity from coal (58.8% of installed electricity generation capacity), renewable hydro-electric sources (17.2% of installed electricity generation capacity), renewable sources (12.7% of installed electricity generation capacity), natural gas (8.8% of installed electricity generation capacity), and nuclear reactors (2.1% of installed electricity generation capacity). (6)

   Because "increased dependency on imported sources threatens India's energy security" (7) and India has large coal reserves, (8) it likely comes as no surprise that India relies on coal as a mainstay to meet its energy needs for electricity generation. (9) However, burning coal to generate electricity has detrimental health and environmental effects. (10) Consequently, India may be obligated to find sources of fuel for electricity generation other than coal to supply the majority of its electricity needs as the Indian Constitution recognizes that "a clean and healthy environment" is a right for all of India's citizens. (11) Financing difficulties and regional differences in both availability and policy mean that supplying electricity to the remaining 25% of India's population (289 million people) cannot rely solely on further development of renewable energy sources. (12) Nuclear power development is also limited as a source of future development, both by a limited supply of domestic uranium and a negative view of nuclear power plants in the wake of the Fukushima Daiichi meltdown. (13) For electricity generation, natural gas is relatively more environmentally friendly than coal. (14) India also has a large supply of domestic natural gas. (15) Furthermore, recent developments in the natural gas industry, particularly in natural gas reservoirs in North America, have increased the global supply of natural gas, reducing the per-unit price of natural gas on the world market. (16) India should increase the role of natural gas as an energy source for electricity generation by further capitalizing on its domestic reserves and seeking an increased stake in international supplies. (17) India's national oil companies ("NOCs") are uniquely positioned to improve India's energy security by increasing the supply of natural gas that is available to India, provided they behave less like state actors and more like China's NOCs. (18)

   Part II of this Comment presents India's energy security concerns with a focus on securing adequate sources in sufficient quantity to satisfy India's growing demand for electricity while meeting its energy security goals. Part II points out the shortcomings of India's reliance on coal, renewable, and nuclear power sources in achieving these goals, while identifying the under-utilization of natural gas as an opportunity for India to meet its electrical generation goals using its NOCs. Part III provides a brief overview of the role and functions of three of India's NOCs. Part IV discusses the problems faced by India's NOCs as the Indian government executes its social agenda through these companies, distracting them from their stated goals of securing adequate energy resources for India, and suggests that the Chinese NOCs could serve as a model in overcoming this challenge. Part V describes some of the ways that China's NOCs have been able to extricate themselves from state influence while achieving the goal of securing energy and technology resources for China. Part VI suggests ways that India could incorporate aspects of the Chinese NOC model by increasing transparency, aggressively entering new markets through acquisition, and further developing its infrastructure for securing and delivering natural gas.

2. ELECTRICITY AND ENERGY SECURITY IN INDIA

   India represents one of the fastest growing countries in the world in terms of population and economic growth. The population of India increased from 1.028 billion in 2001 to 1.21 billion in 2011. (19) While the recent global economic downturn appears to have slowed India's economic growth, India has remained one of the fastest growing economies in the world. (20) In addition to its growing economy and population, India is also becoming an increasingly urban country. (21) The confluence of growth, development, and urbanization has contributed to an increased demand for electricity. (22)

   Electricity in India is subsidized and even provided free of charge to some users. (23) Nonetheless, about (25) % of India's population (289 million people) was without electricity in 2012. (24) Even though electricity reaches only three-quarters of India's population, India is unable to meet the current demand for electricity without importing source fuels. (25) Recognizing the need for an energy policy that could sustain India's rapid growth, the Committee of Experts on Integrated Energy Policy was formed on August 12, 2004 and asked to submit a report with energy policy recommendations by February 11, 2005. (26) This Committee was comprised of academics, industry representatives, and government officials from India's natural resource Ministries. (27) The Committee developed the Integrated Energy Policy ("IEP"), which was released in its final form in 2006. (28) The IEP defines energy security for India by stating:

   We are energy secure when we can supply lifeline energy to all our citizens irrespective of their ability to pay for it as well as meet their effective demand for safe and convenient energy to satisfy their various needs at competitive prices, at all times and with a prescribed confidence level considering shocks and disruptions that can be reasonably expected. (29) Operating under this definition, the IEP goes on to make several recommendations for securing adequate supplies of energy to sustain India's growth and discusses the role of coal in India's energy mix.

   1. Using Coal to Generate Electricity in India

      The IEP recognizes the importance of coal in fueling India's growing need for electricity. (30) Coal is the largest single fuel used to supply India's electrical power generation needs. (31) India's coal is nationalized with a price set by the government that is structured to favor use of coal in electricity generation and agriculture. (32) In spite of low prices and significant domestic reserves, (33) India still imported 14% of the coal that was burned in 2009, and coal is expected to continue to play a significant role as a source of fuel for electricity generation in India. (34)

      Subsidized electricity disguises the true price of energy, but it may also disguise the true cost of coal-fired power plants. (35) The pollution generated from coal-fired power plants in India may be detrimental to the health of India's population, especially in dense urban areas. (36) India's transmission and use inefficiencies, as well as theft of electricity, further contribute to pollution as more coal is burned to generate the electricity that is wasted and stolen rather than dedicating these resources to beneficial uses. (37) While government programs make coal in India cheap and domestic supply makes it convenient, the health and environmental risks associated with using coal as a primary fuel for electricity generation likely fails the IEP's goal of providing safe energy. (38)

   2. Alternatives for Generating Electricity in India

      As of December 2013 India's total installed capacity for electrical generation was just over (232) gigawatts. (39) Anticipating the increased demand for energy and electricity to power a growing economy, the IEP projects India's capacity to generate electricity to increase from just under 1,000 billion kilowatt hours to between 4,000 and 5,000 billion kilowatt hours by 2032. (40) Supplying this power is predicted to require installed capacity to generate between 778 and 960 gigawatts of electricity. (41) India already imports fuel for electricity generation to meet current energy demand, so it must either further develop domestic resources or seek importation of additional fuel for electricity generation in the future. (42) To meet the growing fuel needs for increased capacity the IEP calls for developing a mix of energy sources and supplies that includes renewable, nuclear, oil, and gas sources. (43) Obstacles impeding the development of renewable and nuclear resources limit the viability of these sources in meeting India's...