dhurjati mukherjee
Predictions and projections may not turn out to be accurate. While promises of politicians mostly are found to falter, this may not be the same in case of professional economists who predict something based on some scientific calculations. In this connection, the West Asian crisis has complicated the situation in most countries of the Third World, including India, which is heavily dependent on oil and gas imports.
It is a well-known fact that the world remains dependent on reliable oil and gas supplies, even though two-thirds of global spending in the energy sector now go to cleaner alternatives such as solar power. While oil now meets a smaller share of global energy needs than it earlier used to – less than 30 per cent, according to the International Energy Agency – the world uses almost twice as much of the fuel as it did in the early 1970s. And natural gas used to heat homes and generate electricity, underpins much more of the economy than it used to. According to experts, the post-oil world is still a future proposition. The world can be said to be just in the middle stages of an energy transition as such change takes time.
Meanwhile, a sustained rise in crude oil prices could widen India’s current account deficit, push up inflation and affect economic growth, pointed out most economists. However, Finance Minister, Nirmala Sitharaman, informed the Lok Sabha that the government does not expect inflation to rise substantially due to the recent spike in global crude prices. It hovers below $100 per barrel presently from just below $70 per barrel in end February. However, prices analysts believe that the price may eventually stabilise at around $85 per barrel compared to last year’s average of $69 per barrel though Fitch projected a few days back the global crude oil to average $70 per barrel in 2026.
According to SBI Research and many other studies, if the oil prices reach the $120 mark per barrel, which at present appears quite unlikely, GDP growth may fall to around 6 per cent. One may mention here that before the continuation of the tensions in West Asia, may lead to food inflation. Up to $100 per barrel, the impact on current account deficit, inflation and growth is expected to be manageable but if it crosses that mark, the impact may be exponential, rightly stated Soumya Kanti Ghosh, the Chief Economic Adviser of SBI.
If that situation occurs, which may be ruled out at this juncture, the country may face a problem situation and in the present atmosphere it remains to be seen how the RBI balances inflation management with currency stability. It is gratifying to note that Moody’s Rating and its Indian affiliate, ICRA, stated that the West Asian conflict should have limited near-term impact on India’s banking system though real GDP growth would be 6.4 per cent of GDP.
One may mention here that crude imports from Russia remained at the top of India’s oil basket despite US warning New Delhi against purchases from Moscow for which an additional levy of 25 per cent was imposed. Indian oil purchases from Moscow picked up in 2023 after the Ukraine war, which went up to 1.5 to 2.1 million barrels a day. It is interesting to note that India never stopped sourcing crude from Russia despite President Trump linking the withdrawal of a 25 per cent penalty tariff in the proposed trade deal framework to New Delhi’s purported pledge to halt such purchases. Much to the relief of India, the US recently announced a 30-day waiver to India to purchase Russian oil. It “removed a point of friction” that was never in anyone’s interest to sustain.
The problem arises regarding gas imports. India may face serious disruptions in supply of fertilizers and raw materials in the next Kharif season, starting June, if the blockade of the Hormuz Strait continues due to the conflict in West Asia, according to insiders. Any reduction in the supply of liquefied natural gas (LNG) to urea manufacturers in the coming weeks could impact production of the key soil nutrient ahead of the Kharif planting season. As is well known, Kharif crops account for more than half of India’s foodgrain production as major crops such as rice, pulses, oilseeds, cotton and sugarcane are sown during the season. On average, fertilizer companies produce around 2.5 million tonnes of soil nutrients per month.
If LNG supplies are not normalised, production could be affected, industry experts pointed out, highlighting that production of fertilizers usually begins in end March. At present 60 per cent of LNG used in urea manufacture is imported from Qatar. The blockade of shipping routes in the Gulf would obviously push up prices of DAP and urea and impact the government’s food subsidy expenses. Regarding LPG, India imports 60 per cent from West Asia and the longer the conflict lasts, households as well as commercial users are expected to suffer though indications point to an early settlement.
Right now, it is important for the country to tap other sources like Australia and Canada but, in the long-term, there is need to scale up biogas production in India. Simultaneously also, India has enough compostable biomass to meet at least 75 to 80 per cent of our gas needs. And compost can easily replace fertilisers whereby valuable foreign exchange would be saved.
With nearly 40 per cent of India’s LNG flow hit due to the present conflict, the government is reportedly working on an alternative plan for industries, including priority segments such as fertiliser. The Petroleum Ministry is working on the plan and an early solution is awaited. Fertiliser units may be given enough supply to operate on optimum level, according to informed sources. This is a lean season for the industry as the Kharif season starts in June and production of fertilisers picks up from early May or late April. The Union Fertiliser Ministry stated that agencies had imported soil nutrients in large quantities, which added up to 9.8 M.T. till the end of February. Import of another 1.7 M.T. has been tied up for the next three months and their arrival is awaited.
An interesting plan that would be of great help in availability of gas is through coal gasification that converts coal to synthetic gas, consisting of carbon monoxide and hydrogen. Through this process, it would be possible to harness the vast coal reserves efficiently and sustainably. But the most interesting and encouraging aspect in this regard is the use of ethanol. While India scrambles to secure LPG supply, its ethanol distilleries are operating below full capacity. India’s ethanol capacity has grown to 1822 crore litres supported by 500 distilleries nationwide.
Experts believe that diverting 250 crore litres towards cooking would serve nearly 20 million households without compromising E20 blending targets. It may be mentioned here that ethanol burns cleanly producing primarily CO2 with water vapour. Meanwhile, HPCL and IIT, Guwahati have developed an ethanol-fuelled cookstove and the former recently announced plans for ethanol ATMs at retail outlets to enable households’ refills. Street vendors can safely rely on such stoves without causing any pollution. Bio-ethanol cooking can be considered a safe alternative as it is with domestic production rather than import- dependent LPG. It would be prudent to evolve a long-term plan that needs to be evolved immediately, especially in the gas sector, and how much dependence can be eased not just on West Asia but also reducing imports as a whole. Even the post-oil scenario could further add momentum to increase production of clean energy in India in the coming years.—INFA
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