For much of the 21st century, China has been the most important driver of commodity markets, relentlessly posting blistering growth rates in the consumption of copper, soy, iron ore, coal, oil, and other raw materials. It wasn’t long ago that China was expected to add around one coal plant per week for the foreseeable future.
However, a combination of factors are causing economists to reevaluate China’s status as the world’s most important energy consumer. A war on pollution, the proliferation of renewable energy, and more importantly, a fundamental shift of the Chinese economy away from an energy-intensive growth model have resulted in slowing fossil fuels consumption. So far this year, China’s coal consumption has likely declined by around 4 percent.
Instead, China is passing the baton to India, according to the International Energy Agency in its recently published 2015 World Energy Outlook. The IEA carved out a special section on India to highlight the central role it will play in the future of energy markets.
India’s energy consumption has nearly doubled since 2000 and it is showing no sign of slowing down. With around three-quarters of its energy consumption sourced from fossil fuels, India will have an outsized impact on coal, oil, and gas fundamentals.
The U.S. and India are rapidly moving in opposite directions in terms of coal consumption, with India poised to overtake the U.S. in the very near future.
Take coal, for example. India’s electricity demand nearly tripled between 2000 and 2013, growing at an annual rate of 6.9 percent. With 60 percent of the 290 GW of electric capacity made up by coal, India is a big player in international coal markets. The U.S. and India are rapidly moving in opposite directions in terms of coal consumption, with India poised to overtake the U.S. in the very near future.
India sits on the third-largest coal reserves in the world, but it has not been able to produce enough to keep up with demand. India imported 140 million tonnes of coal in 2013, or 12 percent of the global total. Most of that comes from Indonesia (61 percent) and Australia (21 percent).
Coal miners the world over will be fighting for market share in India as China continues shifting towards cleaner sources of energy.
India’s 1 billion tons of coal consumption still pales in comparison to China’s (more than 4 billion tons annually). But now that China’s coal imports may have leveled off—by some estimates, China’s coal imports declined by 31 percent in the first three quarters of 2015—India is one of the few countries that could make up a large source of growth for the coal industry. Coal miners the world over will be fighting for market share in India as China continues shifting towards cleaner sources of energy.
The potential for growth is hard to fathom. The IEA sees 580 million new electricity consumers in India between now and 2040, resulting in a five-fold increase in electricity demand. Much of that will be met by coal, making India the last hope for international coal producers as demand declines in the developed world. In a jaw-dropping conclusion, the IEA sees India accounting for half of the total new coal-fired generation capacity expected to be constructed around the world over the next two and a half decades.
India is the world’s third largest importer of crude oil after China and the United States.
India will also take on an increasingly important role in crude oil markets. India is the world’s third largest importer of crude oil after China and the United States. It has modest oil reserves but only produces 900,000 barrels of crude per day, as regulatory uncertainty and unfavorable pricing arrangements hold back investments by oil producers. For instance, BP spent $7.2 billion on acquiring oil and gas assets in India a few years ago, but the projects are stalled because of political obstacles and price controls.
Unable to significantly boost output, India is forced to import over 3 million barrels per day, a level that is rising quickly. Over the next 25 years, India is expected to add another 6 million barrels per day in demand, by far the most of any other nation in the world.
India has a truly urgent need to provide modern energy access to its population, but the massive increases expected in coal and oil consumption will lead to deteriorating air quality and rising emissions.
The government of Prime Minister Narendra Modi has implemented goals and incentives to promote renewable energy. The Jawaharlal Nehru National Solar Mission calls for 100 GW of solar by 2022. Overall, the government set a target to install 175 gigawatts of renewable energy by 2022, not including large hydroelectric dams, which if achieved will amount to nearly five times the current level of 37 GW.
A modest addition of 4 GW of nuclear power to the already existing 6 GW will help a bit, but nuclear ultimately won’t emerge as a major source of electricity.
India’s renewable energy targets are ambitious, but even if India succeeds, the volume of new clean energy capacity will be overwhelmed by the expected increase in coal combustion. The IEA expects coal to not only grow in absolute terms, but to gain market share in India’s rapidly expanding energy mix between now and 2040. That will present monumental problems for India’s air pollution, and will have an impact on global efforts to arrest greenhouse gas emissions.
Growth expected to accelerate
Rapid urbanization, ambitious plans for industrialization, and high annual economic growth rates will lead to India’s energy consumption exploding in the coming years. One fifth of India’s population, or $240 million people, still lack access to electricity and live in abject poverty—India’s energy consumption will continue to grow rapidly as more and more people are brought into the formal economy, even if they consume energy at just one-third of the global average on a per capita basis.
To illustrate the point, India only accounted for 5.7 percent of total global energy demand in 2013, yet it has 18 percent of the world’s population, highlighting the huge demand potential that has thus far been bottled up by poverty.
India is quickly growing into the role that China has played for the past two decades: A rapidly expanding economy that will serve as the engine of the world’s growing thirst for energy. Global shipments of coal, oil, and other commodities that were once routed to Shanghai or Shenzhen will increasingly dock in Mumbai. As China steps aside, India will take its place as the greatest source of growth.