High global fuel prices may push India to raise coal production: Officials

New Delhi: Developed countries must make sincere and equitable efforts in calming down artificially high fuel prices and promote energy transition, particularly from coal to cleaner fuels such as natural gas, or else nations like India will be left with no option but to raise domestic coal production, two officials aware of the development said.

Despite major global headwinds, India is the world’s fastest growing economy that has huge energy requirements. The same cannot be met through energy imports at extremely high rates because of a supply squeeze by the producers’ cartel. Hence, India will be forced to dig more into its huge coal deposits, deferring its energy transition plans, they said, requesting anonymity.

The government’s energy transition plan includes raising the share of natural gas in India’s energy mix from 6.3% now to 15% by 2030, mainly through imports of liquefied natural gas (LNG). “As domestic output (of natural gas) is almost stagnant and costs of crude oil and LNG have soared due to the supply curbs, India is left with no option but to raise its coal production,” one of them said.

India, which is the world’s third-largest consumer of fossil fuel, imports 85% of the crude oil it processes and 54% of its natural gas requirement. India’s gross domestic production of natural gas in September fell 1.7% at 2,852 million metric standard cubic metres on an annualised basis, while crude output remained almost stagnant at 2.4 million metric tonnes, according to official data.

India’s LNG import costs jumped 70% in 2021-22 at $13.4 billion compared to $7.9 billion in 2020-21, even as import quantity fell by about 7%. LNG in the spot market is around $50-60 per million metric British thermal unit (mmBtu) compared to around $10-12 before the Ukraine war.

“The government is focusing on domestic coal production to fuel India’s economic growth. The focus is to involve private sector in coal production so that reliance on imported coal is minimised,” a second official said.

Speaking at the launch of the 6th round of coal mine bidding, the biggest ever auction of 141 blocks, coal minister Pralhad Joshi on November 3said India expects 900 million tonnes local coal production this Year. Domestic coal output in the current financial year up to October was us over 18% at 448.17 million tonnes, according to the coal ministry data. Domestic coal production in 2020-21 was around 778 million tonnes.

Speaking at the same place that day, finance minister Nirmala Sitharaman said a fast-growing economy like India needs greater investment in coal production and gasification projects as energy prices globally, especially that of gas, is going up. She stressed on the need for coal gasification at a time when global gas prices are soaring and uncertainties around energy supply persist.

Supply chain disruptions because of the Ukraine war and energy supply cuts by the Organisation of the Petroleum Exporting Countries (OPEC) and its allies, including Russia (together called OPEC+), have led to major shortages of intermediate products such as crude, coal, natural gas and semiconductors, experts said.

“The resulting scarcity and upsurge in energy prices is one of the key factors responsible for the ongoing economic recessions/slowdowns in many economies,” consultancy firm EY said in its latest edition of Economy Watch.

Even as other economies are staring at an impending recession, India needs cheaper energy to fuel its economic growth because it is the world’s fastest growing economy, EY said. Even as recessionary clouds are on the global horizon, “India remains a bright spot,” said EY India chief policy advisor D K Srivastava.

“Three major economies of the world, namely China, Euro area and the US, are expected to slow sharply in 2022 and 2023. Growth in the US is projected to decline from 5.7% in 2021 to 1.6% in 2022 and just 1% in 2023. In the Euro area, growth is projected at 3.1% in 2022, falling to 0.5% in 2023. China’s growth estimated at 3.2% in 2022 would be its lowest in more than four decades, excluding the initial Covid-19 crisis in 2020,” he said. “India’s growth is forecasted at 6.8% in FY23 and 6.1% in FY24, the highest among major economies of the world. India is projected to retain this position during the forecast period from 2022 to 2027 (FY23 to FY28 for India).”


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