India is one of the top five economies in the world with a gross domestic product (GDP) of almost USD 3.5 trillion (nominal). As per NITI Aayog estimates, by 2047, India would become a USD 30 trillion economy.This growth in GDP will be accompanied by a multi-fold increase in the country’s energy consumption as well; estimates from various agencies peg the consumption level to be almost double of those in 2022.
Despite the positive growth of the Indian energy sector, there is a pressing need for the country to meet its climate obligations and reach net zero emissions by 2070. Hence, India will have to walk the tightrope of balancing its growth ambitions with the requisite reductions in its carbon footprint which will increase due to the surge in economic activity.
Electrification has increased in transport and industrial sectors; however, penetration is far from being satisfactory. For example, electric vehicle (EV) sales only account for 1% of total vehicle sales, and oil and natural gas remain crucial means to meet the country’s burgeoning energy requirements in the short to mid-term. S&P Global Inc. estimates India’s total petroleum demand to increase by 2 million barrels per day by 2035, while the International Energy Agency (IEA) has opined that India will tip China by 2027 to be the biggest driver for incremental oil demand into the next decade.With such demand and push for cleaner energy, we expect to see increased natural gas usage due to supporting infrastructure build and policy measures amounting to USD 67 billion over the next 5-6 years. Additionally, biofuels will play a crucial role in making the industry become greener, especially in terms of use of petroleum products and natural gas. Biofuels will also be integral to India’s strategy for energy security by reducing dependence on imports in an increasingly VUCA world. India is almost 90% reliant on crude oil imports and liquefied natural gas (LNG) imports accounts for 50% of gas, and this is expected to increase with further gasification of the economy. Rising energy imports bill (USD 150 billion+ in FY24) will also put considerable strain on the balance of payments, along with the exposure to commodity price volatilities and vagaries of geopolitical uncertainty. Despite India having an abundance of biomass, the uptake of the same has been relatively slow in compressed biogas (CBG), with biodiesel with bioethanol seeing mild success. If this adoption happens at scale, it can solve the twin problems of energy self-reliance and decarbonisation. Let us look at the ethanol story to review key success factors – i.e. structured blending targets, policy support in terms of guaranteed pricing and offtake ethanol consumption. These factors have played a considerable role in the growth of ethanol, with India now being the third-largest producer and consumer of ethanol globally. Going forward, the Government will have to work with the industry to create a similar momentum around 2G ethanol and biodiesel using policy instruments and building local or regional sustainable supply chains. Tax breaks, viability gap funding (VGF) and clarity on pricing, along with support for localisation of the enzymes required for the manufacturing of 2G ethanol, will nudge the industry towards sustainable growth. Equivalent measures are also required for biodiesel production – specifically around feedstock sourcing (jatropha, palm oil etc.) and supply chain and with original equipment manufacturers (OEMs) for blend-fuel engines. The upcoming budget would focus on these areas to announce relevant initiatives for both supply and consumption (increased campaigns for adoption) sides.
India’s abundance of agriculture residue presents itself as the perfect ingredient for a green fuel landscape; however, collation, categorisation and sorting infrastructure also need to be in place. CBG can leverage this with the dual potential of reducing dependence and volatility of imported LNG, and also aid in the country’s decarbonisation agenda. While raw feedstock (both agri and bio) is available, the lack of standardisation and institutionalisation of a dependable supply chain, thereby the bankability of projects, has been a major challenge for the sector. Therefore, policy push from Government, in terms of 100% offtake guarantees from gas marketers/city gas distribution (CGD) utilities, fermented organic manure (FOM) management support and establishing a carbon trading market will go a long way in making CBG projects viable. Similarly, sustainable aviation fuel (SAF) is another area which can enhance our green fuels. Recognising the same, the Government has already set blending targets for SAF (1% by 2027 and 2% by 2028) for flights flying out of the country. With the right technology investments, partnerships and supply chain, India can not only become self-reliant in SAF but also become a leading exporter in the global aviation market and strengthen its role in the Global Biofuels Alliance.
India has made significant efforts to transform into a fuel and refining hub, with over 300mtpa capacity and 1,00,000+ fuel retail outlets across India. To further enhance its biofuel economy and have a well-rounded green fuel portfolio, concerted efforts from oil and gas companies, ministries% and local governments will be required to address the issues of feedstock, supply chain, taxation, offtake and by-product management. This will help create a sustainable and growing green fuel ecosystem for the country to supplement the traditional petroleum products and natural gas.
Main Authors: Manas Majumdar, Partner & Sector Leader Oil & Gas, PwC India
Abhinandan Dutta, Director Oil & Gas, PwC India also contributed to this article.
