Natural Gas: The critical component of India’s Energy Mix
Updated: Nov 20, 2019
As India’s economy and population continues to grow, its energy needs would continue to grow as well. India’s GDP grew by 8.2% in Q1 2018-2019, and is expected to grow fivefold by 2040. Its population is expected to surpass China’s population by 2022, reaching 1.4 billion and creating an ever-increasing energy demand.
India’s Current Energy Mix
Currently, India imports three quarters of its energy needs, including 80% of oil, which makes up around 30% of India’s energy mix. The role of natural gas has been very limited in the recent times: only 7% in 2017, however the government wants to increase it to 15% by 2022, a target considered to be highly over ambitious. Even though the government has taken a number of initiatives such as the Hydrocarbon Exploration and Licensing Policy (HELP) and infrastructural investments to create a natural gas grid, we are still missing an integrated policy that clearly determines and demarcates the role of natural gas in India’s energy mix.
Business as Usual Case for Natural Gas
Estimates show that India’s gas consumption is expected to grow to 70 bcm by 2020 which is 130 bcm short of reaching the target of 15% by 2022. Gas consumption in India is mainly limited to four sectors: Fertilisers, which has the largest share (64%), followed by Power Industry, City Gas and other Industries such as petrochemicals and iron and steel. Consumption is primarily driven by factors such as price and volatility of gas. While low gas prices is expected to grow demand in the long term, the fertiliser and the power industry remain very price sensitive. Natural gas in the power sector is unable to compete with coal, which will remain the cheapest fuel unless taxes are levied on its consumption. In the near future, a comprehensive market-based pricing mechanism for natural gas would be essential to promote efficient gas usage and stimulate domestic supply.
The Role of Coal
Coal continues to dominate India’ energy mix, comprising 58% of primary energy consumption. Coal is primarily consumed by the power sector, in which gas is a competing fuel. The growth of coal consumption is highly contingent on India’s policy on the usage of this polluting fuel. A tax was introduced on coal production by the government in 2014, but it is not enough to encourage the switch to natural gas. The power sector comprises of half of India’s total CO2 emissions, and has been ever increasing owing to the use of coal. Government has taken further steps with mandating of supercritical technology for all coal-power based plants, however its policy is strongly determined by the fact that India has the world’s fifth largest coal reserves and coal is one of the reasons why India can provide for its one fourth of its own energy needs.
Infrastructural development is a critical aspect in optimising India’s potential as a major gas market. The slow rate of pipeline infrastructure deployment and the under utilisation of the already developed pipelines are the major challenges in this avenue. Pipeline infrastructure also has a great regional disparity - Gujarat and Maharashtra have 40% of the infrastructure, whereas eastern, central and southern India have limited to no connectivity. This disparity, coupled with limited regasification terminals and other technical challenges add to a long list of infrastructural woes for India. India’s trunk pipeline target is underachieved due to lack of financing; however, the government has recently started to invest into transmission lines by providing a $800 million grant to Gas Authority of India Limited. A faster execution and completion rate of projects hold the key to the future of India’s gas infrastructure network.
Commonly overlooked upon, India’s COP 21 commitments should be the biggest driver for the growth of India’s natural gas market. India’s targets are enshrined within its Intended Nationally Determined Contribution (INDC) as a part of the UNFCCC COP21 agreement, whose aims are to reduce the emission intensity of GDP by 33-35 percent from 2005 levels by 2030. It also aims to achieve 40% of cumulative electric installed capacity from non-fossil fuel sources and to create an additional carbon sink of 2.5-3 billion tonnes of CO2 equivalent by 2030. India has one of the most ambitious renewables program with a target to reach 175 GW installed renewables capacity by 2022. Out of this 175 GW, 100 GW would be met by solar, 60 GW by wind and the rest 15 GW by other sources. This 175 GW target is a significant determinant to the future gas in India because gas can play a great role in balancing the intermittency of renewables and in bridging the energy deficit if the targets are not met. Gas, being much cleaner than other fuels, can play a role in reducing CO2 emissions and meeting India’s INDC targets.
A strategic role of gas in the power sector needs to be determined by the government, as it would help balance its renewables target while complementing its COP21 commitments. At this juncture India strongly needs to consider Natural Gas as the bridging fuel between conventional sources and renewable sources while being mindful of natural gas production and extraction strategies. The government has already directed all Industries in Haryana to switch to PNG, wherever it is available.
This year, the government shut down all industries running on coal or diesel in the Delhi NCR region post Diwali, allowing only Industries using PNG as a fuel to run.
The country needs an aligned national policy which recognises the role of Natural Gas and clearly demarcates its position in India’s Energy Mix. Government policy along with the willingness of Industrial players would play a role in establishing the true Golden age of Gas in India.