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Reliance on Oil and Gas Imports and Economic Growth – India’s New Challenge

Posted: April 27, 2017 at 6:15 pm   /   by   /   comments (0)

(Image by Surajseo via Wikimedia Commons)*

Simi Mehta and Mohsin Amin

India, a nation of 1.3 billion people, kicked off 2017 as the fastest growing major economy in the world with an economic growth rate of 7.1%. India is also the fourth-largest net importer of crude oil after the European Union, the United States, and China. In November 2016, this rapidly growing economy imported 80% of its crude oil and other petroleum needs.[1] Per the EIA’s recent report, India’s demand for oil has reached nearly 4.1 million barrels per day (b/d) in 2015, while it only had around 1 million b/d total in domestic liquids production. India’s Petroleum Planning and Analysis Cell stated that this was 12.7% higher than in November 2015. OPEC has estimated that India’s demand for oil will reach 10 million b/d by 2040.[2]

The demand for natural gas is also met by LNG imports. Accordingly, the Petroleum Planning and Analysis Cell stated in their November 2016 report that in November 2016, imports of liquefied natural gas (LNG) totaled 2019.40 million metric standard cubic meters (MMSCM), an increase of 15.47% compared to November of the previous year.[3] Total natural gas consumption from April to November 2016 was 33,391.34 MMSCM, an increase of 7.94% compared to the same period in the previous year. India has managed to satisfy 63% of its natural gas demand through indigenous production and the remaining 37% through imported LNG.

Faced with the scenario of global oil price uncertainty, and pressures of huge domestic demand for energy, India needs to chart a way forward to realistically meet its energy requirements while simultaneously ensuring equitable economic growth. This article presents a snapshot of India’s energy demand and import scenario and discusses relevant government schemes for fuel efficiency. It provides a list of policy recommendations and concludes that due to geopolitical uncertainties and fuel price volatility, India urgently needs to integrate its economic growth strategy with growth in the energy sector, and simultaneously ensure the sustainability of the environment.

Sourcing of India’s Oil and Gas Imports

India imports approximately 58% of its crude oil from the Middle East, mostly from Saudi Arabia and Iraq.[4] In 2015, it imported 20% of its crude oil from Saudi Arabia, worth $14.8 billion USD, and 17% from Iraq worth $11.2 billion USD.[5] India has decreased its imports from the Middle East since 2011, however, and has plans to increase its imports from Africa – mainly Nigeria. One reason that Indian refineries have pushed for imports from Africa is the particularly light and sweet quality of its crude oil, for which the Indian refineries were designed to refine. Nigerian crude oil, for instance, is rich in gasoline and diesel and low in sulfur.

In 2015-16, India imported nearly 23.7 million metric tons of Nigerian crude oil, worth $9.2 billion, accounting for almost 12% of its overall oil imports. It also imports some 2 million metric tons per year of LNG from Nigeria.

India also sources its crude oil imports from Latin American countries. In 2015, it imported nearly 18% of its crude oil: 11% from Venezuela and 7% from the rest the Western Hemisphere. Venezuela exported crude oil worth $6.6 billion to India in 2015.

Nevertheless, India maintains a strategic petroleum reserve as part of its national and energy security programs to safeguard the economy in the event of an unforeseen energy crisis. The government has taken up construction of three crude oil reserves comprised of 5.33 million metric tons (MMT) of crude oil at three locations – namely, Visakhapatnam (1.33 MMT), Mangalore (1.5 MMT) and Padur (2.5 MMT) – as a buffer to deal with any disruption in the supply chain. Very recently, during the visit of the crown prince of Abu Dhabi to India, the UAE and India signed a deal that would allow the Abu Dhabi National Oil Co. (ADNOC) to store about 6 million barrels of crude oil, of which half is stored at the facility at Mangalore, Karnataka.[6] This facility also stores 6 million barrels of Iranian oil. The Vizag storage site (in Andhra Pradesh) contains 7.55 million barrels of Iraqi oil.

India’s import of $250-$300 million of oil and gas per day raises doubts on the country’s ability to maintain its current high rates of economic growth over the next decade. Unless it gradually reduces its dependence on imports by prioritizing indigenous production and hastens the implementation of energy efficiency mechanisms, India’s energy security would remain a cause of concern. Moreover, energy supply cuts or withdrawals would negatively impact growth; therefore, production increases in the domestic oil and gas industry is a priority to ensure decreased dependence on oil imports and, thus, Indian energy security. The following section outlines the policy efforts undertaken by the Indian government to overcome the challenge of energy insecurity.

Can India Expand its Indigenous Oil and Gas Production? 

The Indian government adopted several strategies over the last twenty years to mitigate the country’s dependence on imported crude oil and gas. Exploration and production in the hydrocarbon sector was opened to private sector competition after implementation of the New Exploration Licensing Policy (NELP) (1997-98) and the Coal Bed Methane (CBM) Policy (1997) through an open bidding system.[7] These policies sought to provide a level playing field for private investors by allowing the same fiscal and contract terms applicable to the National Oil Companies (NOCs) for exploration acreage placed on offer. Hydrocarbon Vision 2025 (2002) aimed to reduce the dependence on external crude and gas supply by enhancing indigenous supply through exploration in frontier areas and proven areas, and the initiation of exploration of non-conventional hydrocarbon resources.[8]

The Hydrocarbon Exploration and Licensing Policy (HELP) was unveiled in 2016 to ensure uniform licensing of the exploration and production of all forms of hydrocarbons, and freedom in the marketing and pricing of the crude oil and natural gas produced.[9] This policy is aimed at enabling the exploration of conventional – as well as unconventional – oil and gas resources by contractors including CBM, shale gas/oil, tight gas, and gas hydrates under a single license.

In line with the “Make in India” program, the Ministry of Petroleum and Natural Gas (MoPNG) began the process of identifying equipment and products in the oil sector that can be domestically manufactured.[10] Companies like GAIL have begun building LNG ships in Indian shipyards, and the Oil and Natural Gas Corporation Ltd (ONGC) and the Indian Oil Corporation (IOC) have aligned their procurement processes to provide preferential market access to domestically produced equipment and products.

At present, a 15,000 km gas pipeline network exists in the country; in addition, the Indian government is focused on developing a national gas grid across the country.[11] To complete the grid, the government planned an additional 15,000 km in gas pipelines for construction. Out of the proposed 15,000 km, about 13,000 km have already been authorized and these projects are at various stages of implementation.

With the government target to cut crude oil imports by half by 2030, Indian Railways is guaranteed to be the biggest procurer of biodiesel, which would reduce its fuel bill by about $5.75 million.[12]

Given the realistic constraints of infrastructure development and the inherent challenges of expanding this development to reach the whole country at once, the Indian government will begin by connecting 10 million households through the piped natural gas (PNG) network over the next 5 years. Further, to expedite the expansion of the City Gas Distribution (CGD) network, the Indian government accorded the highest priority in domestic gas allocation to CNG (transport) and PNG (domestic households) segments. Per the MoPNG, the new emphasis on natural gas as a source of energy attracted the fertilizer and the power sector to become the sectors with the largest gas consumption.[13] These energy-intensive industries have the potential to reduce overall carbon emissions by reducing their dependencies on coal and other, more polluting fossil fuel sources.

Fuel-Efficiency Policies Can Alleviate Oil and Gas Import Challenge

Fuel efficiency polices make it mandatory for vehicle manufacturers to adopt critical technologies to comply with norms for reducing the emissions of harmful gases in the atmosphere. For instance, Barack Obama, former president of the US, announced the National Fuel Efficiency Policy in 2009 which aimed at increasing fuel economy and reducing greenhouse gas pollution, thereby addressing climate change concerns and promoting the health of Americans.[14]

There are also many fuel efficiency polices already in place in India. For example, the government recently allowed the direct sale of bio-diesel (B100) to bulk consumers like railways and state transport corporations by private manufacturers, their authorized dealers, and the joint ventures between oil marketing companies authorized by the MoPNG.[15] Moreover, 5% bio-diesel blending in diesel has been underway since August 2015, and bio-diesel is now sold by oil marketing companies in more than 750 retail outlets.[16]

The current government has proposed the conversion of used vegetable oils from food chains into biodiesel, which could be blended with diesel by fuel outlets; this initiative is part of the overall strategy of the MoPNG and the Ministry of New and Renewable Energy (MNRE) to cut energy imports and carbon emissions. The government has a target to cut imports by half by 2030. Furthermore, in 2015, the MoPNG permitted direct sale of biodiesel (B100) to bulk consumers such as railway, shipping, and state road transport corporations.

Oil companies in India have initiated several research and development programs for improving fuel efficiency in the country. For instance, INDMAX, a technology of the Indian Oil Corporation Limited, is a program for the conversion of heavy residue feedstock to high yields of light olefins, LPG, and gasoline in the refineries at Guahati and Paradip.  ONGC signed a memorandum of understanding (MoU) in 2015 with Super Wave Technology Pvt. Ltd. (SWTPL), Karnataka, for pursuing research on alternative technology for hydraulic fracturing. This is a step toward indigenous innovation and leadership in the import-intensive oil and gas industry, which would simultaneously address environmental concerns.

The MoPNG has also rolled out an elaborate plan to reassess hydrocarbon resources in India’s sedimentary basins. The MoPNG plans to reform production sharing contracts to instill confidence among national and international investors. The ‘Urja Sangam,’ or the Energy Meeting of 2015, showcased India’s potential in the hydrocarbon sector to the world, created an investor-friendly atmosphere, and demonstrated India’s thought leadership by creating a new “Energy Security” platform.[17] Stakeholders attending were urged to increase domestic production of oil and gas to reduce the nation’s import dependence from 80% to 67% by 2022, to coincide with India’s 75th year of independence.

To further augment the domestic production of oil and gas, the discovered small fields policy was approved to incentivize hydrocarbon exploration.[18] The new gas pricing formula was also introduced to strike a balance between incentivizing exploration and the production of gas in the country while protecting consumer affordability.[19] A 15,000 km gas pipeline has been planned to complete the gas grid. Of the proposed 15,000 km gas pipeline, about 13,000 km have already been authorized for construction; these projects are at various stages of implementation. Moreover, a proposal for developing gas pipelines through the Viability Gap Funding Mechanism (where government would grant capital funding for such projects to a maximum of 20% of the total project cost) has also been explored by the Indian government to expedite the completion of the national gas grid.

The MoPNG, in association with the Petroleum Conservation Research Association (PCRA), launched a campaign, the Saksham 2017 (Sanrakshan Kshamta Mahotsav), to further encourage the masses to conserve and effectively utilize petroleum products to improve citizens’ health and protect the environment.[20]

Is there Appetite for Taxation, and Quantity Restriction vs Excise tax?

While oil price reforms are awaited, the Indian government continues to subsidize petroleum and cooking fuel, namely LPG and kerosene. The government undertook sustained efforts toward managing the demand for petroleum products, while ensuring availability and accessibility at prices affordable by the average consumer. The `PAHAL’ Scheme was launched in January 2015 to streamline subsidies to consumers through direct cash transfers for the use of cooking gas.[21] The ‘GiveItUp’ campaign is a clarion call to the affluent sections of the country to voluntarily give up the LPG subsidy, and support a strategy whereby the benefit of the LPG subsidy would not be available for LPG consumers if the consumer or spouse had taxable income of more than rupees 10 lakhs in the previous financial year.

India has adopted emission standards in the form of Bharat Stage (BS), based on European regulations, which have been applied since year 2000 to internal combustion engine equipment, including motor vehicles, and upgraded it since then; however, the output of air pollutants like carbon monoxide, nitrogen oxide and others remain a cause for concern.[22] As a way forward, the MoPNG planned to adopt BS VI by 2020.[23] This would significantly lower the amount of emissions released by motor vehicles into the atmosphere, which are estimated to be responsible for two-thirds of all carbon emissions in India.[24] 

Policy Recommendations and Conclusions

It is recommended that the Indian government take inspiration from the fuel efficiency standards that were adopted by the U.S. in 1975 – the Corporate Average Fuel Economy (CAFE) regulation – in response to the Arab oil embargo.[25] The aim would be to curtail energy consumption, improve the nation’s energy security, and build fuel efficiency and GHG emissions standards for medium and heavy-duty vehicles, as well as increasing the fuel economy of cars and light trucks. CAFE set higher fuel efficiency standards [xxvi] over the years and was well- received by environmentalists and advocates of fuel conservation.[26] Similarly, like the US, India could explore sustainable technologies for the exploration of recoverable shale gas.

India needs to develop LNG infrastructure, including terminals, tankers, and the technology needed to build LNG ships. These would potentially contribute to an acceleration of the growth of the oil and gas industries in India and a concomitant reduction of oil and gas imports.

To conclude, India acknowledges the negative implications of increased dependence on foreign countries for the import of crude oil due to geopolitical uncertainties and volatility in the international oil markets. The country, however, continues to face challenges in energy pricing reforms to improve efficiency, promote competition, and attract investment. It stands at a crucial juncture in devising policies which cater not only to the demands of an ever-growing population, but also to ones which combine growth in the energy sector with conservation and are environmentally sustainable. In terms of international energy cooperation and trade, India has focused on confidence building measures intended to promote peace between countries, and has identified four areas for cooperation in the oil and gas sector: trans-boundary natural gas trade through projects such as TAPI [xxvii], trade in refined petroleum products, cooperation in oil and gas exploration, and cooperation in natural gas vehicles (NGV) development.[27] The government has an important role to play in encouraging the adoption of gas as a clean-energy source. Pipeline tariffs need to be set on fair principles, protecting the interests of both producers and consumers. Practically, this means ensuring a fair return on investment and respecting the highest technical, safety, and environmental standards. The implementation of these measures would reduce imports by increasing supplies at a domestic level from all sources, namely coal, oil, gas, nuclear, renewables, among others, and thus enable India to attain sustainable energy security.

Simi Mehta is Ph.D candidate at CCUSLAS and Fulbright Scholar at Ohio State University, USA. Mohsin Amin is a Former Advisor to the Afghan Energy Commission, Energy Policy Analyst and Fulbright Scholar at the School of Public Policy, Oregon State University, USA. 


Licensed for use under Creative Commons Attribution-ShareAlike 4.0 International (CC BY-SA 4.0):


[1] Debjit Chakarborty and Dhwani Pandya, “India’s Oil Imports Touch Highest on Record as Demand Booms,” Bloomberg, last modified September 20, 2016,

[2] The Economic Times, “India’s oil demand to more than double to 10 million bpd by 2040,” last modified December 5, 2016,

[3] Petroleum Planning & Analysis Cell, “Monthly Report on Natural gas production, availability and consumption – November, 2016,” last modified November, 2016,,2016.pdf

[4] Energy Information Agency (EIA), “India: Overview,” last modified June 14, 2016,

[5] Daniel Workman, “Crude Oil Imports into India,” World’s Top Exports, last modified March 14, 2017,

[6] Nidhi Verma, “India to fill Mangalore strategic reserve with UAE oil,” Reuters, January 25, 2017,

[7] Ministry of Petroleum and Natural Gas, “New Exploration Licensing Policy (NELP),” last modified 2015,

[8] Ministry of Petroleum and Natural Gas, “India Hydrocarbon Vision- 2025,” last modified 2014,

[9] Press Information Bureau, Government of India, “Major Policy initiatives to give a boost to Petroleum and Hydrocarbon Sector,” last modified March 10 2016,

[10] Government of India, “Make in India,” last modified 2014,

[11] Petroleum Federation of India, “National Energy Policy for Oil & Gas Sector,” last modified November 16, 2015,

[12] Shine Jacob and Shreya Jai, “India’s next crude oil import saving plan, served from kitchen,” Business Standard, last modified October 14, 2016,

[13] Ministry of Petroleum and Natural Gas, “Outcome Budget For 2016-17,” last modified 2016,

[14] Office of the Press Secretary, The White House, “President Obama Announces National Fuel Efficiency Policy,” last modified May 19, 2009,

[15] USDA Foreign Agricultural Service, “India: Biofuels Annual 2016,” Global Agricultural Information Network (GAIN) Report, last modified June 24, 2016,

[16] Ministry of Petroleum and Natural Gas, “Annual Report 2015-2016,” last modified 2015,

[17] Shine Jacob and Shreya Jai, “India’s next crude oil import saving plan, served from kitchen,” Business Standard, last modified October 14, 2016,

[18] Directorate General of Hydrocarbons, Ministry of Petroleum and Natural Gas, “Discovered Small Fields Bid Round-2016,” last modified 2016,

[19] Ministry of Petroleum and Natural Gas, “Report of the Committee on Gas Pricing – 2014,” last modified 2014,

[20] Ministry of Petroleum and Natural Gas, Petroleum Conservation Research Association, last modified 2016,

[21] Press Information Bureau, Government of India, Ministry of Petroleum & Natural Gas, “Launch of PAHAL (DBTL) scheme on 1st January 2015 in entire Country,” last modified December 31, 2014,

[22] India Today, “All you need to know about India’s BS-IV and BS-VI emission norms,” last modified January 6, 2016,

[23] First Post, “BS III, BS IV… BS VI? Here’s why India’s auto emission norms are, well, BS,” last modified June 2, 2015,

[24] S.A. Rizwan, Baridalyne Nongkynrih, and Sanjeev Kumar Gupta, “‘Air Pollution in Delhi: Its Magnitude and Effects on Health,’” Indian Journal of Community Medicine: Official Publication of Indian Association of Preventive & Social Medicine 38, no.1 (2013): 4–8,

[25] National Highway Traffic Safety Administration, US Department of Transportation, “Corporate Average Fuel Economy,”

[26] Bill Vlasic, “U.S. Sets Higher Fuel Efficiency Standards,” The New York Times, last modified August 28, 2012,

[27] Mohsin Amin, “A Pipeline to South Asia Prosperity,” Foreign Policy, last modified February 9, 2016,



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