Complexities of energy security

For decades now, India has considered oil to be its swing fuel that it could easily import in times of shortages and cut back on those imports when superfluous. This strategy worked reasonably well till the time the prices remained reasonably stable and within a given range. The extreme volatility and sky-rocketing prices, as witnessed over the past several months, has exposed the folly of such an approach. Around the same time, India also started seriously pursuing the issue of establishing strategic petroleum reserves as a measure towards enhancing its energy security. The government decided to set up 5 million tonnes (mt) of strategic crude oil reserves in three locations, that is, Mangalore, Vishakapatnam and Padur — all in south India — and has delegated the responsibility of constructing this reserve to a special purpose vehicle. These facilities are expected to be operational by 2012 — too late to take advantage of the current slump in oil prices. However, India’s oil security would need to go well beyond these measures. India’s crude oil imports are around 122 mt and these reserves would contribute to securing a mere 4 per cent of our external vulnerability. In the meantime, our oil dependency is reaching 80 per cent and is expected to go up to about 93 per cent in another 20 years. With a significantly enhanced level of consumption, it is obvious that creating a strategic reserve of 5 mt is not going to take us too far. India must evaluate all options to reduce its dependence on petroleum products and make strategic investment decisions in line with this objective — particularly in the transport sector. The strike called by the public sector oil units two weeks ago truly exposes the real vulnerability of India’s situation vis-à-vis its oil security — and its vulnerability obviously emerges from a lack of attention to internal mechanisms rather than to external supplies. In the three days that the public sector oil companies were on strike, most cities had run out of fuel and long and angry lines had formed in front of several gas stations. People were running out of cooking gas supply and the dismal power situation in the country was exacerbated by the lack of diesel to run generators. The economy was slowly, but surely, grinding to a halt. Where were the product storage spaces that we are supposed to have? How would we ensure that products reach different corners of the country? How many days of supplies of each product do we need in which part of the country? What are the alternative/additional institutional arrangements that need to be mobilised to secure petroleum product supplies? There are several lessons to be learnt from this strike. One hopes someone in the government is paying attention to them. Today, we have one single refinery located at our West Coast meeting 22 per cent of India’s energy demand which, when its expansion phase is fully operationalised, is likely to account for 35 per cent of India’s refinery share in the next couple of years. Any incident — natural or man-made — that would affect the operations of this refinery could bring the country to its knees. A preview of such vulnerability was available when an unscheduled shutdown in this refinery led to enormous liquefied petroleum gas shortages in 2007. India needs a clear strategy to secure this as well as other energy assets — both in the oil sector as well as its electricity infrastructure. A very interesting study was undertaken in the US a few years ago identifying its critical infrastructure and locations. India, too, needs an analysis of this nature to reduce its vulnerability. The nature and complexity of energy security has changed substantially in recent years. Our population is no longer willing to sit back and moan non-availability of good quality, reliable energy supplies. With growing incomes, wider exposure and good communication, the incidents of social unrest associated with poor energy services are likely to increase and have the potential to become cancerous in their spread. We must respond to these changing dynamics in an appropriate and timely manner now.