India’s Energy Endgame in an Era of Peak Fossil Fuels

India’s role as a major fossil fuels consumer may grow as demand rises while the global fossil ecosystem stagnates.

The contrarian overlap between the imminent global fossil energy consumption peak and India’s inevitable growth in consumption needs a detailed and granular analysis and corrective action to avoid our economic growth being impacted. The relevant energy pathways need to be identified and pursued at both technical and diplomatic levels.

Photo: PTI

Although India is among the world’s top three energy consumers, we have largely been preoccupied with immediate and medium-term management of our fast-galloping energy needs. The International Energy Agency (IEA) estimates that India’s total energy consumption grew by 7.3 per cent in 2022, as compared to the global average of 2.1 per cent. However, on per capita terms, an Indian consumed half the energy his global peer did.

We also have a huge import energy dependence not only for fossil fuels but also for inputs for solar and other renewables or even nuclear fuel. Unless we address them in a concerted manner, these vulnerabilities may create a serious choke-point for our socio-economic growth.

India To Peak in Fossil Fuel Demand

India’s longer-term energy scenario gets even more complex. Its low base, fast-growing economy, rising population, improving living standards, urbanisation, and industrialisation propel India to see “the largest increase in energy demand of any country to 2040”, making her the first driver of the global energy locomotive.

Further, in an article published in the Financial Times on 12 September 2023, the IEA Chief predicted that the peak fossil fuel demand "will happen this decade.” The oil producers have hotly contested this projection as "not fact-based” seeing it as a self-fulfilling prophecy liable to scare investors away from upstream fossil fuel projects, leading to stymied production raising the fossil fuel prices and making them uncompetitive.

They have also pointed out that fossil consumption is rising, likely to surpass their pre-COVID peaks in 2023, and are set to maintain their momentum for the foreseeable future.

Expansion of Clean Energy Factor

However, IEA’s World Energy Outlook 2023 (WEO23) published earlier this week has underlined the veracity of their Chief’s assertion last month by providing corroborating data. For instance, in IEA’s scenarios, the GDP growth of China, the world’s largest fossil energy consumer, is expected to average just under 4 per cent per year by 2030.

This lower growth results in its total energy demand peaking around the middle of this decade, with robust expansion of clean energy putting overall fossil fuel demand and emissions into decline. If China’s near-term growth were to slow by another percentage point, this would reduce 2030 coal demand by an amount almost equal to the volume currently consumed by the whole of Europe.

Oil import volumes would decline by 5 per cent and LNG imports by more than 20 per cent, with major implications for global balances. Similarly, the WEO23 now projects that 50 per cent of new car registrations in the United States, the second largest fossil energy consumer, will be electric in 2030.

Two years ago, the corresponding figure in the WEO21 was 12 per cent. In granular terms, the IEA foresees the global coal demand peaking in the next few years, natural gas demand reaching a plateau by the end of the decade, and oil demand reaching a high point in the mid-2030s before falling slightly.

The contrarian overlap between the imminent global fossil energy consumption peak and India’s inevitable growth in consumption needs a detailed and granular analysis and corrective action to avoid our economic growth being impacted. The relevant energy pathways need to be identified and pursued at both technical and diplomatic levels.

India’s Role in the Global Fossil Fuel Ecosystem

Firstly, in the short-to-medium run, India’s role as a major consumer of fossil fuels is likely to grow as our demand rises while the global fossil ecosystem stagnates. This presages price volatility, hopefully, with a bearish drag.

Some geopolitical features of the emerging fossil ecosystem may need anticipating and attending to. Demand shrinkage would be higher in the Western economies facing several headwinds. The “global south”, India included, would, however, continue to use more fossil fuels.

This may rearrange the producer-consumer equation and care needs to be exercised in making the transition less jerky and free of the geo-political risks.

On the production side, too, new suppliers, such as Brazil, Surinam, Mozambique, Australia, shale oil and gas, etc would shuffle the deck creating unpredictability for the traditional suppliers.

At a different level, in a stagnant fossil energy ecosystem, the global energy major – both private and state-owned – could be guided by considerations which disrupt the market by restricting the investments and technological inputs.

Solutions to the Emerging Challenges

Here, we would need to be time-wise granular, differentiating between short to medium and long terms, In the first phase, the global consumption of fossil energy sources may keep growing, albeit, at a slowing velocity and geopolitical risks may disrupt. In recent times, we have already seen a spate of disruptions from the Shale revolution, the global pandemic, the arrival of electric vehicles, the Ukraine war, and the ongoing Gaza conflict, etc.

In a decade, hopefully, these trends will settle down and fossil energy consumption may peak and start declining concomitantly bringing their input prices down to a more reasonable level.

Secondly, India would come under intense pressure from the West to reduce and reverse its use of fossil fuels in general and coal in particular. Our options on this score may be limited, but these would need to be exercised keeping in mind our strategic national interest comprehensively and sustainably.

Here, we can leverage the relevant technological innovations enabling more efficient and less polluting use of coal, such as supercritical thermal power plants, methane-bed technology, carbon capture, etc.

Thirdly, at a geopolitical level, our continuing dependence on fossil fuels would increase our dependence on the Gulf suppliers, which are “hydrocarbon-long” producers. We need to think of the products and services needed by these countries to balance the bilateral trade.

We would need to realise the potential for energy complementarity, particularly in the hydrocarbon sector, through joint projects across the whole gamut of the supply chains. These could include investments in the entire range of up- mid- and downstream segments involving exploration, production, pipelines, LNG shipping, refining, petrochemicals, and strategic reserves.

In the worst-case scenario, if the global demand peaks in the next seven years, these economies would decline, sending back our diaspora in droves. The fall in remittances would follow affecting our economic stability. Another possible inflexion point could be political concessions sought from India if, for some reason, their production peaks ahead of our consumption.

India has, in a digressed manner, already taken several steps to address these potential headwinds. These include solar to bio-fuel, from fast breeder nuclear power to acquiring fossil fuel sources abroad, from more efficient and less polluting thermal plants to promoting EVs, and from green hydrogen to better logistics.

Here, the ongoing work needs to be accelerated in Gati-Shakti mode, ensuring to avert the time and funding slippages. India must ensure secure supply chains of the strategic inputs required for a smooth energy transition, from solar panels to lithium and rare earths. We can also do far more to switch to green steel and make our railways more user-friendly to replace the fossil-guzzling roadways for both freight and mass transit.

Above all, we need to evolve an integrated approach prioritising energy self-sufficiency, particularly in fossil fuels, in its own right and at a faster pitch. If done right, this would not only free us from the fickle and geopolitically unpredictable global fossil energy market but would also create several new growth centres for our economy.

(The author was an Indian Ambassador to Algeria, Norway and Nigeria. He is currently the President of Eco-Diplomacy & Strategies, a Delhi-based consultancy. This is an opinion piece. The views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)