India's Widening Energy Deficit

India's energy crisis is set to deepen as top producers of coal, natural gas and oil recently said their output will grow little in the next few of years—not what the country wants to hear at a time when its thirst for fuel shows no sign of abating.

This means more fuel imports and costlier import bills at energy companies. It also means India's energy sector is becoming increasingly vulnerable to global supply disruptions and price volatility due to events like Australia's floods and unrest in the Middle East.

India's planning commission projects that dependence on energy imports could double to 53% of commercial energy consumption in 2031-32 from about 25% in 2003-04.

According to the International Energy Agency, coal accounts for about 40% of India's total energy consumption, oil for about 24%, and natural gas for 6%.

Indian companies are now bracing for a surge in fuel imports which are likely to squeeze public and private finances and forex reserves, force a rethink in borrowing strategies and widen fiscal and trade deficits.

India's crude oil imports have more than doubled in the last ten years, touching 159.26 million tons in 2009-10. India imports about 80% of its crude oil requirements and about 31% of India's total imports are oil imports. Saudi Arabia and Iran are the largest suppliers of crude to India, accounting for 30% of total imports in 2009-10.

This is set to rise further as oil refiners are making huge capacity additions with total refining capacity set to rise 28% to 240 million tons in two years.

The government is however working on reducing supply risk. It is planning to build three crude oil storage facilities by mid-2013 that will have 15 days of emergency supply, aiming to raise this to 45 days.