Energy security or plastic profits?

India announced a 20 per cent capacity expansion over the next five years, ostensibly to meet the demand from the transportation and energy sectors. Its thirst for fossil fuels is spurring a refining boom, despite the decline in the US and Europe and the world being poised to peak oil production. Concurrently, the world is also progressing towards a Global Plastics Treaty (GPT) and a Fossil Fuel Non-Proliferation Treaty. The GPT is an opportunity to bring about systemic change: reduce petrochemicals, phase out hazardous plastic chemicals and polymers, and promote the development of non-plastic alternatives. However, India is undermining the negotiations by suggesting (Part A, Part B) that there should be “no binding targets/caps with respect to the production of plastic polymers.”

In July 2023, the Minister of State for the Ministry of Petroleum and Natural Gas stated in Parliament that the demand for petroleum products in 2022–23 was 223 MTPA against the refining capacity of 253.92 MTPA, and the refining capacity was projected to increase by 22% (56 MTPA) by 2028. However, this is smaller than the 450 MTPA expansion that was announced by Prime Minister Modi in October 2020 and the Union Minister of Petroleum and Natural Gas in May 2023. What is not explicitly mentioned is that India has historically imported more than 80% of its crude oil—232.7 million tonnes, amounting to $157.6 billion in 2022–23 alone.

In complete contrast to these growth projections, the Union Minister for Road Transport and Highways, Nitin Gadkari’s vision back in 2016, was to bring India’s petroleum imports to zero, a target he moderated in 2022. He reasoned that alternative fuels like ethanol, methanol, bio-diesel, bio-CNG, bio-LNG, and hydrogen presented the opportunity for the automobile sector to reduce emissions and create additional jobs. India quickly achieved its targets for ethanol blending in petrol: 10% in June 2022, 12% in 2023, and is on track for 20% by 2025. To this end, during the last G20 Summit held in India, the Global BioFuel Alliance was initiated, bringing together 22 nations and 12 international organisations. The Green Hydrogen Mission was allocated $2.3 billion to produce 5 MT of hydrogen by 2030.

India has set a 2030 target for electric vehicle (EV) penetration: 30% private cars, 70% commercial cars, 40% buses, and 80% two- and three-wheelers. It launched various schemes to promote electric mobility: Faster Adoption and Manufacturing of (Hybrid and) EVs (FAME), Production-Linked Incentives (PLI) for EV makers, and is drafting an EV manufacturing policy to encourage global manufacturers to invest and produce in India.

An additional 20% refining capacity would entail an additional import of about 50 MTPA, contributing to the trade deficit. From the point of view of India’s national interests, Gadkari is right in emphasising the need to reduce crude oil imports. In 2022–23, India’s trade deficit was $122 billion and was one of the main drivers for the high current account deficit of $67 billion. The high deficit has led to the depreciation of the Indian rupee over the last four decades. The current account deficit would have nearly halved if India had imported 20% less crude oil in 2022–23, i.e., $126.08 billion instead of $157.6 billion. Instead, the Indian government wants to further expand the refining capacity by 20%, locking India into higher imports of crude for the next 30 to 40 years (the expected life of these assets). Needless to say, the depreciation of the rupee contributes to domestic consumer price inflation.

Ironically, automobile sales in India have been on the decline since 2019–20. EVs were 5.5% (1.18 million) of all automobile sales in 2022–23 and are projected to see a compounded annual growth rate of 72.58% over the next five years, bringing EV sales to 17.30 million by 2028. The Indian Railways undertook massive electrification of tracks, pit lines, and coaches that reduced its annual diesel consumption by 10.4% in 2019–20 and further by 50.29% in 2020–21 and aim to achieve carbon neutrality by 2030. Piped natural gas (PNG) is being expanded as an alternative to liquified petroleum gas (LPG) for household cooking. India, like many others, is promoting natural gas as a bridge fuel in its transition away from fossil fuels and is investing in LNG terminals for imports and augmenting domestic production. The Union government is making efforts to increase the percentage of gas in the primary energy mix from 6 to 15%. If the additional demand for energy is likely to be met via crude oil alternatives, why is India expanding its refining capacity?

The answer is to become a top producer and exporter of petrochemicals and plastics. All PSU refineries have the target of enhancing their petrochemical integration from 7 per cent currently to 25 per cent by 2030. Indian Oil Corporation (IOCL) has the stated objective of increasing their petrochemical intensity index from 5.9 per cent in 2022–23 to 15 per cent by 2029–30, and most of the additional petrochemical capacity is projected to be for polymers to manufacture plastics and feedstock for synthetic fibres. If we take the IOCL target as a proxy for the whole refinery sector, it would mean an expansion of petrochemical capacity linked to refineries from 14.98 MTPA (5.9% of 253.92 MTPA) to 46.49 MTPA (15% of 309.92 MTPA), i.e., an increase of 31.51 MTPA, which is more than half of the projected increase in refining capacity of 56 MTPA in about the same period. Further, India’s Petroleum, Chemicals, and Petrochemicals Investment Regions (PCPIRs) Policy 2020–35—special economic zones intended to facilitate production of petroleum and petrochemicals—will receive investments to the tune of $213 billion by 2030. The PCPIRs are linked to end-use sectors, such as agriculture, pharmaceuticals, telecommunications, automobiles, electronics, and textiles, to drive the demand for chemicals and petrochemicals. 

Through the integration of policies, schemes, projects, investments, and incentives, the Government of India is disregarding climate change and toxicity and violating health and human rights. It is undermining India’s national interest when it comes to energy security, forex reserves, and domestic inflation.

Lastly, fossil fuel and chemical industries’ interests are influencing India’s positions in various multilateral environmental and trade agreements related to climate, plastics, and chemicals. What the country needs is for India to prioritise public health, the environment, and energy security over private profits. India should join the High Ambition Coalition in the Global Plastics Treaty Negotiations to support petrochemicals and plastic polymer reduction, product redesign, and a just transition to a fossil fuel-free economy and a regenerative society.

(The writer, a public policy advocate, is with the Centre for Financial Accountability, New Delhi)