India’s energy strategy needs price correction, Pg6

Key Highlights:

• Disruption in the Strait of Hormuz has highlighted the inseparability of energy security and geopolitics for India, which relies heavily on crude oil imports.
• Despite global crude market turbulence and rising fuel prices in advanced economies, petrol and diesel prices in India have remained relatively stable at around ₹95 per litre.
• India has diversified its energy sources beyond the Gulf, increased strategic reserves, and strengthened ties with suppliers in Russia, the U.S., and West Africa.
• State-run Oil Marketing Companies (OMC) are under financial stress, selling fuel below market costs, with potential daily losses of ₹700 crore-₹800 crore.

Detailed Insights:

• India has expanded its sourcing basket beyond the Gulf, increased strategic reserves, and strengthened ties with suppliers in Russia, the United States, West Africa, and the Atlantic basin.
• The government directed refineries to maximize LPG production to meet rising domestic demand, especially given the expansion of cooking gas access under the Ujjwala scheme.
• Gas allocation was prioritized for households, public transport networks, and fertilizer plants to avoid disruptions across essential sectors, with domestic LPG production increasing by nearly 50%.
• The government has raised petroleum product prices several times, cumulatively by about 7%, but this piecemeal approach neither matches international crude oil prices adequately nor meaningfully reduces the burden on OMCs.
• A one-time price hike of at least 13% on petroleum products would reduce uncertainty, stabilize OMC finances, and allow prices to remain steady until there is a significant shift in global crude prices.

Key Concepts Involved:

• Energy Security: Measures taken to ensure a reliable and affordable supply of energy.
• Strategic Petroleum Reserve: Stockpiles of crude oil maintained by a country to cushion against supply disruptions.
• Ujjwala Scheme: Government program providing subsidized LPG connections to households.