Energy Security

In the three previous articles, we learnt all about coal: how it is formed, how much reserves are there in the world, who the top ten consumers, producers, importers, and exporters of it were in 2010, what happens when you burn it, and what India’s coal situation is. In this article I will talk about energy security and why it is important.

What is energy security? International Energy Agency (IEA) defines it as “the uninterrupted availability of energy at affordable prices”. Long-term energy security deals with making timely investments to supply energy in line with a country’s economic developments and environmental needs. Short-term energy security, on the other hand, focuses on the ability of the energy system to react promptly to sudden changes in the supply-demand balance. The focus of this article is squarely on long-term energy security.

As already stated in the previous article, India has been importing more than 100 million tonnes of coal since 2010, the figure rising with every passing year. If the countries that India imports coal from stop giving it coal, it won’t have enough energy to meet its requirements. On the other hand, if they raise the price of coal, India will have enough energy but not at an affordable price. In either case, its energy security will be compromised.

India is a young nation today, with around 600 million people below the age of 25! By 2020, the average age in India will be 29, as opposed to 40 in the USA, 46 in Europe, and 47 in Japan. This means that India will have a youthful, dynamic, and productive workforce for the next 40 years, when the rest of the world, including China, is ageing. In the next 20 years, the labour force will reduce by 4% in the industrialized world and by 5% in China. In contrast, it will increase by 32% in India! The advantage that can accrue to India by virtue of being blessed with a young population in the first half of the 21st century is called “demographic dividend”, a phrase that has captured the imagination of policy-makers across the political divides in our country.

However, if India isn’t able to ensure its energy security, it won’t be able to grow at the expected rate, which in turn would mean that it won’t be able to provide enough jobs to its youth and enable them to contribute productively to the nation’s and world’s economy. In other words, if India isn’t able to ensure its energy security, its demographic dividend will turn into demographic disaster. And in many ways, it would be a disaster for the entire world as well since all eyes are on India right now to provide the next boost of growth due to its huge internal demand for various products and services. PM Modi explicitly talked about this while campaigning for the 2014 Lok Sabha elections, and the nation obviously liked it since they gave him an absolute majority in the Lok Sabha in the 2014 general elections. So there is a huge responsibility on his shoulders to ensure India’s energy security so that it grows at the expected rate and its demographic dividend can be capitalized upon. If he delivers on his promises, he will come back to power in 2019 with a thumping majority! If not, he will get decimated by the same youth that voted him in to power in 2014!

So how does India, or any country for that matter, ensure its energy security? One way that a naïve person might suggest is to be “friendly” with the countries that it depends on for energy security. Unfortunately, the degree of friendship doesn’t determine the price of coal, and even if it did, one must always remember that there are no “permanent friends” in geopolitics. For example, if Australia or Indonesia – two countries that India imports coal from – aren’t able to make “enough” money by exporting coal, they will increase the price of coal even if they want to be “friendly” towards India. Figure 12.1, which shows an article published in Economic Times on 5th May, 2015, illustrates my point.

Tata Power obviously has the option of switching to a different source of coal. But it’s not that easy. Like the article states, if you are running a 4,000 MW coal-fired thermal power plant, you better be sure that your coal supply is not interrupted. So while a supplier cannot raise coal prices unilaterally, because ultimately it is the international demand-supply of coal that will determine its prices, he will do that if he sees that you are in a tight spot. And the odds of companies finding themselves in a tight spot will increase going forward since coal is a scarce resource, which also means that its prices will increase going forward.

The other way – to ensure one’s energy security – is to make the other countries dependent on it for something that is of equal importance to them. So for example, if Australian economy comes to depend a lot on Indian students going to their universities for higher education and/or Indian workers in its workplace, then India can use that as a counterweight; you give us coal if you want us to keep sending students and/or professionals to Australia.

The best way, however, is to “dominate” the countries that it depends on for energy security. That is what USA has done over the years. Its dependence on oil from the Gulf countries had reached such humungous proportions that it became a “strategic” commodity for them, where the word strategic meant that the American government would step in if required, even to the point of war, which they actually did on multiple occasions. Irrespective of what their publicly stated objectives were, the major factor behind many conflicts and military deployments that USA was involved in was to ensure adequate supplies of oil from the Gulf at affordable prices, which is the definition of energy security as stated earlier.

However, this isn’t everybody’s cup of tea, needless to say; USA could do it because they were a superpower, and the lone one after the demise of the USSR. But the cost of waging “oil wars” became too much even for them, and the cost of human life – that of American soldiers – and the resulting widespread protests was a big part of it. So, in 2011, President Obama established a national goal of reducing oil imports by 33% by 2020, and in 2012 increased that goal to 50%. Accordingly, USA has started producing shale oil with the help of a process called fracking, and are on their way to achieving the ambitious goal; crude oil production has grown each year President Obama has been in office to its highest level in 17 years in 2012, and since 2008, USA’s oil production growth has accounted for one third of the global growth.

So the best way for India to ensure its long-term energy security is to rely on the bountiful renewable energy sources that it is blessed with: solar because of the abundant sunshine that it receives, and offshore wind thanks to its coastline of more than 7,500 kms. If India does that, it will become not only a self-reliant and important country in the 21st century, but perhaps also a dominant one.