India’s brittle energy security is inextricably linked to two opposing paradigms — fossil fuels, and the transition to green energy.
The first powers the present; the second paves the way for Viksit Bharat in 2047.
But for now, both are in jeopardy — buffeted by geopolitics on one side and dependency on the other. Muddling the mix are domestic taxes.
Energy security was what was occupying the minds of officials from India’s oil ministry in 2024 when they burnt the midnight oil for months — consulting global oil majors and state oil companies to understand why no international oil company came to drill in India, while dispatching giant offshore drilling rigs to minions like Guyana and Trinidad, a senior government official said.
hese discussions laid the foundation for India’s most ambitious upstream drilling regime, the cornerstone of energy security for a nation that depends on geopolitical hotspots like Russia and the Gulf for nine out of every 10 barrels it consumes.
State-run explorers ONGC and Oil India were already in advanced talks with ExxonMobil, Chevron, Shell, BP, and Total — and all, barring Shell, plan to bid for blocks jointly with state-run explorers under India’s 10 drilling rounds, once the government notifies the terms of the Oilfields (Regulation and Development) Amendment (ORDA) Act, 2025, a top ONGC official told Business Standard.
All this optimism took just an announcement to unravel. On a day when the country was celebrating a steep cut in the goods and services tax rates, India’s oil sector was in a fix — GST on exploration, development, and production of oil and gas was hiked from 12 per cent to 18 per cent effective September 22, increasing production costs for exploration and production firms amid sliding oil prices.
It is a double whammy and could lead to some assets not being developed on account of poor returns,” said Prashant Vasisht, senior vice president at ratings agency Icra, a Moody’s affiliate.
Geopolitics and GST
The frailty of India’s energy security has never been so exposed as in the last few years, beginning with Russia’s invasion of Ukraine in February 2022, when liquefied natural gas (LNG) prices surged to over $50 per million British thermal units, 25 times what India paid for the fuel in 2020.
That was followed by two more geopolitical events: Iran-backed Houthi rebels blocking the critical Suez Canal, choking oil flows, and Israeli attacks on Iran threatening the Straits of Hormuz.
An extended blockade of the Hormuz could have choked India because domestic strategic oil storage accounts for hardly 8-9 days of consumption.
Domestic production has been on a perennial decline since peaking at 767,000 barrels per day (bpd) in 2011.
It stands at 565,000 bpd now. India also imports around half of its gas in the form of LNG, and over 60 per cent of its liquefied petroleum gas (LPG), according to oil ministry data.
European Union (EU) sanctions on fuels produced from Russian crude dealt a further blow, with Nayara, the Gujarat-based subsidiary of Russian energy giant Rosneft, specifically targeted by the 27-nation bloc.
US President Donald Trump has capitalised on India’s weakened oil and gas output, and its high dependence on imports to try and push New Delhi into a corner.
The additional 25 per cent tariffs imposed by him for Indian purchases of Russian oil have the potential to impact $70 billion of Indian exports and several thousand jobs, an industry official said.
Energy firms expect a proposed Oilfield Amendment Bill to futureproof India from such threats, in addition to measures for a favourable tax regime.
“Our industry is one of the largest tax revenue generators for the country, so perhaps easing some of the taxes will act as a fiscal incentive for producers,” an industry official said.
“Instead, the government has chosen to increase taxes.’’
Oil producers already pay 60-70 per cent of revenue in royalties and other taxes, a leading producer said.
Most of India’s oil and gas production comes from older areas governed by a high tax regime.
“The decision to raise GST rates on oil equipment and services (by 6 percentage points) effective September 22, especially considering that petroleum doesn’t get covered in GST, is a negative since there is no input credit to be availed of on our expenditures,’’ said Kapil Garg, managing director, Asian Energy Services.
A former top government official said ministries often worked in silos — which, in this case, meant the finance ministry trying to recoup lost GST revenues from drilling, even though the measure would take some of the shine off one of India’s ambitious exploration programmes.
“The industry would also benefit from greater involvement from the knowledge and resources of the private sector, which includes both MNCs and domestic players,’’ Garg said.
Previous successes like the production of hydrocarbons in the KG Basin and Rajasthan were spearheaded by private companies.
But foreign drillers seek regulatory certainty, officials from two foreign oil companies and a government official said at a conference earlier this year.
Gas woes
Domestic gas production has declined by 3 per cent this financial year to 28.7 billion cubic metres.
“Gas supply will need to increase substantially in the industrial sectors, replacing traditional fuels such as coal and oil, and enhancing its role to complement the growing demand for renewables,’’ said Sehul Bhatt, director, Crisil Intelligence.
But in the absence of an increase in domestic output, India must boost LNG imports more than four-fold to 120 million tonnes by 2030 to more than double the share of gas in the energy mix to 15 per cent by 2030, said Petronet LNG CEO Akshay Kumar Singh at an industry event last month.
India also needs to build stocks of essential chemicals and catalysts, key components to operate refineries, Russian Rosneft-run Nayara Energy Chairman Prasad Panicker said at an industry event last month.
Panicker’s comments come amid Nayara losing access to such materials from western vendors, after the EU sanctioned the company in July.
The petrochemical sector is significantly dependent on imports for feedstock (Naphtha, LPG, and Ethane) and products such as HDPE, LLDPE, said Navanit Narayan, CEO, Haldia Petrochemicals, which will start a Rs 5,600 crore phenol and acetone project by mid-2026 to substitute imports.
“Chinese materials (PP, Phenol, PVC, etc) are arriving in India at a much lower costs.”
Transition
While oil and gas will remain the core of India’s growth engine, the dependence can still be reduced to half from 90 per cent now by improving access to electric vehicles, biofuels, and renewable energy, industry officials said.
India needs a multipronged approach to energy security, said Manas Majumdar, leader, oil and gas, at consultancy PwC, advocating a quicker pivot to biogas, electrification, and green hydrogen.
“The requirement of BESS (battery storage) in the Indian grid is huge: Just going by the National Electricity Plan, the requirement is 236 Gwh (gigawatt hour) by 2031-32,” said Debmalya Sen, president, India Energy Storage Alliance. Operational BESS is a meagre 500 Megawatt-hour (Mwh), with around 20 Gwh awarded.
Buffeted by stormwinds from global conflicts and an uncertain US presidency, and squeezed by hiked indirect taxes, India’s energy security framework must now look at alternatives beyond oil and gas.
With the right technologies, say industry figures, such a pivot will also help the country realise its climate change ambitions more robustly.
© 2025