India to lead world energy demand growth, oil to play key role: IEA

Singapore — India is set to witness the biggest increase in energy demand in the world over the next 20 years, with the potential for oil consumption rising as high as 4 million b/d at 8.7 million b/d by 2040, the International Energy Agency said in a report Feb. 9.

But a much stronger push for electrification, efficiency and fuel switching could limit that oil demand growth to less than 1 million b/d over the same period, the report added.

The India Energy Outlook 2021 -- a special report in the IEA's World Energy Outlook series -- said domestic production of oil and gas continues to fall behind consumption trends and net dependence on imported oil could potentially be above 90% by 2040, up from 75% today.

This continued reliance on imported fuels creates vulnerabilities to price cycles and volatility, as well as possible disruptions to supply, it added.

The natural gas market is growing fast in India, but the 6% share of natural gas in India's current energy mix is among the lowest in the world. There are expectations that gas consumption could double in two decades as its use rises in the industrial sector and in city gas distribution.

"As India builds out its gas infrastructure, natural gas can find multiple uses in India's energy system, including to help meet air quality and near-term emissions goals if supply chains are managed responsibly."

The report added that a long-term vision for gas needs to incorporate a growing role for biogases and low carbon hydrogen, for which India has a large potential.

Cleaner fuels

IEA said there was a need for policies and investment to accelerate the energy transition process toward cleaner forms of fuels.

"India has made remarkable progress in recent years, bringing electricity connections to hundreds of millions of people and impressively scaling up the use of renewable energy, particularly solar. Government policies to accelerate India's clean energy transition can lay the foundation for lasting prosperity and greater energy security. All roads to successful global clean energy transitions go via India," an IEA statement quoted its executive director Fatih Birol as saying.

India's ability to ensure affordable, clean and reliable energy for its growing population will be vital for the future development of its economy, but avoiding the kind of carbon-intensive path previously followed by other countries will require strong policies, technological leaps, and a surge in clean energy investment, the report said.

The additional funding for clean energy technologies required to put India on a sustainable path over the next 20 years is $1.4 trillion, or 70%, higher than a scenario based on its current policy settings. "But the benefits are huge, including savings of the same magnitude on oil import bills," it said.

More than that of any other major economy, India's energy future depends on buildings and factories that are yet to be built, and vehicles and appliances that are yet to be bought.

India's energy use has doubled since 2000, with 80% of demand still met by coal, oil and solid biomass. On a per capita basis, India's energy use and emissions are less than half the world's average, as are other key indicators such as vehicle ownership, steel and cement output.

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Dynamic shift

As India recovers from a COVID-19 induced slump in 2020, it is reentering "a very dynamic period in its energy development," the report said.

Over the coming years, millions of Indian households are set to buy new appliances, air conditioning units and vehicles. "To meet growth in electricity demand over the next twenty years, India will need to add a power system the size of the European Union to what it has now," the report added.

Prior to the pandemic, India's energy demand was projected to increase almost 50% between 2019 and 2030, but growth over this period is now expected to be closer to 35%, taking into account the current policy settings and constraints and with an assumption that the spread of COVID-19 is largely brought under control in 2021. In a delayed recovery scenario, it could be as low as 25%.

"Even though the pandemic and its aftermath could temporarily suppress emissions, as coal and oil bear the brunt of the reduction in demand, it does not move India any closer to its long-term sustainable development goals," the report said.

Solar power is set for explosive growth in India, potentially matching coal's share in the Indian power generation mix within two decades.

Solar accounts for less than 4% of India's power generation, and coal close to 70%. By 2040 or earlier, they are likely to converge in the low 30%s.

"This dramatic turnaround is driven by India's policy ambitions, notably the target to reach 450 GW of renewable capacity by 2030, and the extraordinary cost-competitiveness of solar, which out-competes existing coal-fired power by 2030 even when paired with battery storage," the report said.