India’s Energy Shortages

A 2012 International Energy Agency (IEA) report estimated that nearly 25% of the Indian population lacks basic access to electricity. Even electrified regions suffer from constant rolling electricity blackouts.

On the surface, the IEA report shows how backward India’s infrastructure is, and that it can’t supply energy to India’s poorer regions.

However, this also highlights the amount of infrastructure India needs to build in order to become a developed economy. And this could be an opportunity for you.

Plenty of shortages

Apart from the household electricity shortage indicated by the IEA report, there are plenty of other shortages in the Indian energy business.

Much like China, India mainly uses coal as its energy source. It accounts for 41% of total consumption. Biomass and waste energy account for 23% of the country’s total consumption. Natural gas makes up 8%, petroleum 23%, and nuclear and other renewables make up 5%.

However, there is a 33% shortage in India’s primary energy production. This means India needs to import a lot of energy. The Indian government is well aware of the risks of foreign energy dependency. So the country has set targets to achieve energy independence by 2030.

India aims to achieve these targets by increasing hydrocarbon production and unconventional resources, such as coalbed methane and shale. Other methods include buying foreign energy companies. The plan also includes reductions to motor fuel subsidies.

What this tells you is the Indian energy business will experience growth and investment in the years ahead.

Despite having the fifth largest coal reserves in the world, India has seen an increasing supply deficit in recent years. Inefficiencies in the sector are to blame.

The entire production and distribution of coal is monopolised by two state-owned enterprises (SOEs). Coal India Limited [NSE:COALINDIA] controls 80% of the country’s coal. Shortages in coal have been blamed on both Coal India Ltd and the Railway Ministry. Both organisations are inefficient.

However, despite all its inefficiencies, Coal India Ltd is riding on a high growth economy. The growth of the Indian economy is powered by the energy sector.

There is a direct link between India’s top-line growth and its energy consumption/production.

But what about oil and gas?

India was the fourth largest consumer of oil and petroleum products in the world in 2011. And India’s rising consumption is making it more dependent on imported oil, especially from the Middle East. India imports most of its oil, making it the fourth largest importer of oil and petroleum products in the world.

In terms of natural gas, India was self-sufficient until 2004. Then it began to import liquefied natural gas (LNG) from Qatar. With India increasingly substituting natural gas for coal, this is an urgent problem. The nation currently faces a 30% supply deficit for natural gas.

The shortages in petroleum and natural gas highlight the need for infrastructure investment.

It’s a repeating story. 

The backbone of the economy

India is a fast growing economy, with the potential for further growth. And the energy sector is the backbone of the entire economy. It’s a great proxy for the economy. The share price of Indian company Reliance Industries [NSE:RELIANCE] illustrates the potential:

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