India is increasingly dependent on imported fossil fuels as demand continues to rise

India's dependence on imported fossil fuels rose to 38% in 2012, despite the country having significant domestic fossil fuel resources. India ranked as the fourth-largest energy consumer in the world in 2011, following China, the United States, and Russia. The country's energy demand continues to climb as a result of its dynamic economic growth and modernization. India is the third-largest economy on a purchasing power parity basis and has the world's second-largest population, according to World Bank data.

As India modernizes and the population moves to urban areas, the country has shifted from using traditional biomass and waste to relying on other energy sources, including fossil fuels. India's newly elected government, with the Bharatiya Janat Party as the majority party, faces challenges to meet the country's growing energy demand, to secure affordable energy supplies, and to attract investment for domestic hydrocarbon production and infrastructure development.

Petroleum and other liquids. In 2013, India was the fourth-largest consumer and net importer of crude oil and petroleum products in the world after the United States, China, and Japan. India's petroleum product demand reached nearly 3.7 million barrels per day (bbl/d), far above the country's roughly 1 million bbl/d of total liquids production. Most of India's demand is for motor gasoline and gasoil, fuels used mainly in the transportation and industrial sectors, and for kerosene and LPG in the residential and commercial sectors. Consumers receive large subsidies for retail purchases of diesel, LPG, and kerosene, placing upward pressure on overall oil demand. Insufficient investment in developing more crude oil and liquids production has caused production to grow at a slower rate than oil demand.

Net oil import dependency rose from 43% in 1990 to an estimated 71% in 2012. The Middle East was the major source of crude oil supply to India in 2013, followed by countries in the Americas (mostly Venezuela) and Africa. Despite being a net importer of crude oil, India has become a net exporter of petroleum products after investing in new refinery capacity.

Natural gas. India did not import any natural gas until 2004, when it began to import liquefied natural gas (LNG). Because India has not been able to produce an adequate supply of domestic natural gas and has been unable to create sufficient natural gas pipeline infrastructure on a national level, it increasingly relies on imported LNG to meet domestic demand. India ranked as the fourth-largest LNG importer following Japan, South Korea, and China in 2013, and it accounted for nearly 6% of the global market, according to data from IHS Energy. In 2012, LNG imports, mostly from long-term contracts with Qatar, accounted for about 29% of India's 2.1 trillion cubic feet (Tcf) of consumption. Natural gas mainly serves as a substitute for coal in electricity generation and as an alternative for liquefied petroleum gas and other petroleum products in fertilizer production and other sectors in India.

Coal. Coal is India's primary source of energy (equaling 44% of total energy consumption), and the country ranked as the third-largest global coal producer, consumer, and importer of coal in 2012. Despite its significant coal reserves, India has experienced increasing supply shortages as a result of a lack of competition among producers, insufficient investment, and systemic problems with its mining industry. Although production has increased by about 4% per year since 2007, producers have failed to reach the government's production targets. Meanwhile, demand grew more than 7% annually over the past five years with the rise of electricity demand and lower power generation from natural gas and hydroelectricity as a result of recent supply disruptions. Because power plants rely so heavily on coal, shortages are a major contributor to shortfalls in electricity generation and consequent blackouts throughout the country.

Because coal production cannot keep pace with demand, India has met more of its coal needs with imports. Net coal import dependency has risen from practically nothing in 1990 to nearly 23% in 2012. India imports thermal coal for power generation from Indonesia and South Africa. The steel and cement industries are also significant coal consumers. India has limited reserves of coking coal, used for steel production, and imports large quantities of coking coal from Australia.

For more information, see EIA's Country Analysis Brief for India.

Principal contributor: Candace Dunn