RoydadNaft –  Population growth and modernization are causing the energy needs of the world’s fifth largest economy to balloon far past its own output potential. “India, with a population of 1.36 billion and a fast growing economy, has seen its energy demand increasing rapidly as the country continues to urbanize and the manufacturing sector develops,” writes the International Energy Agency in its country-level overview. While the country’s energy consumption level has continued to rise at a rapid clip, however, India’s energy production levels have remained stagnant, spelling potential trouble for the country’s economy and energy security.

As a result, India’s oil import dependency – a measure of how much oil a country imports as compared to its total energy needs – is extremely high, and climbing. According to the most recent data from from the Indian oil ministry’s Petroleum Planning & Analysis Cell (PPAC) in the period from April to September, the country imported 88.2% of its oil, compared to 87.6% in the same period during 2023, and 87.8% for the full financial year 2023-24. 

Natural gas import dependency has followed a very similar trend, from 46.8% a year ago, to 47.1% for the full fiscal year, up to its current rate of 51.5%. 

These import dependencies put India in a position of heightened economic vulnerability, as the slightest volatility in global fossil fuel markets will have major implications for the nation’s bottom line, as well as its energy security. Energy price shocks have the potential to hurt the strength of the rupee, boost inflation, and increase national debts. 

Due to the weight of these risks, India has been aiming to reduce its reliance on oil imports for almost a decade now – but rates have only gone up. “Cutting costly oil imports continues to be a key focus area for the government, which has taken a number of policy measures to incentivise investments in India’s oil and gas exploration and production sector,” The Indian Express reportedearlier this week.

This means that India will likely be leaning more on natural gas production as well as imports, which tend to be inexpensive and less carbon-intensive than other fossil fuels. While the “green”-ness of liquefied natural gas has recently been called into question, many experts still consider it to be a “bridge fuel” allowing for energy security and stability during the difficult transition away from coal and oil toward clean energy alternatives. Currently, natural gas represents just 2% of India’s energy mix, but that figure will soon change in a dramatic fashion.

Natural gas has rapidly become particularly appealing to India, which has struggled to balance immediate energy security with its decarbonization pledges as the nation “looks to balance its short-term energy needs with its long term vision.” India, which has an outsized impact on global energy markets and decarbonization goals due to the grandiose size of its population and economy, has been under enormous global pressure to kickstart an ambitious clean energy transition and phase out coal, which takes up the largest portion of the country’s energy mix and is projected to maintain its energy primacy for the foreseeable future barring any major unpredicted shake-ups.

While increasing natural gas consumption offers notable benefits, however, it would not lessen India’s dependence on foreign imports. In fact, quite the opposite. Estimates from Rystad Energy show that domestic production of natural gas is falling short of targets, while consumption of that fossil fuel is expected to double by 2040. However, this growth rate will depend significantly on Indian policy in coming years. “While gas-for-power isn’t expected to be a major driver for gas demand, the sector could still see growth, however, depending on future policies to promote coal-to-gas switching or introduce carbon pricing,” Rystad reports.