Print Friendly, PDF & Email

Insights into Editorial: India’s road to clean energy goes via natural gas

 

Introduction:

Policy wonks, climate negotiators, academicians, corporates and NGOs are currently fixated on the concept of “net zero carbon emissions” and the appropriate target year for achieving it.

Supported by economic analysis and moral logic and drawing on the concept of “common but differentiated responsibility”, their arguments swirl around its meaning and whether the date should be 2050, 2060, sooner, or not at all.

I am personally supportive of the nature and direction of this debate. The world does need a well-defined, timebound objective.

“Net Zero” offers everyone a tangible metric against which to measure progress.

 

India’s natural gas consumption:

  1. India’s natural gas consumption is small but increasing. Most gas is used in the industrial sector and in power generation.
  2. Residential gas consumption is small, but India is expanding its gas distribution networks rapidly, an area where major growth is expected.
    Some states and cities also promote gas vehicles to reduce emissions from the transport sector.
  3. Domestic production covers just over half of India’s gas supply. The rest is imported in the form of liquefied natural gas (LNG), which has increased rapidly in recent years, thanks to the decline in global gas prices. Investment in new LNG terminals is on a rapid rise.
  4. Since domestic gas production has developed below expectations, gas use for power generation struggles to compete with cheap coal and renewables under the current contracted import prices.
  5. To stimulate more domestic production of oil and gas, the Government of India (GoI) has introduced a Hydrocarbon Exploration and Licensing Policy (HELP), which brought freedom of price setting and marketing for new gas production.

 

Security of gas supply:

India’s growing dependence on imported natural gas, reaching 43% of the total gas supply in 2016 compared to 29% in 2006, requires more attention from policy makers to assure the security of gas supply.

Key factors that constitute natural gas security for India are:

  1. the pace of development of domestic production
  2. the diversity of the gas and LNG import portfolio
  3. pipeline import options
  4. the availability of seasonal storage
  5. the availability of additional LNG volumes.

India must first “green” its fossil fuel energy basket. This can be done by increasing the share of natural gas.

This is a feasible prospect because this increase will not generate the headwinds that the alternative of shutting down coal mines might;

It will not require industries to invest heavily in retrofitting their systems; and it will allow the government to meet its objective of providing secure and affordable energy to everyone without degrading the environment.

 

Four key policy suggestions:

First, the authorities must prioritise natural gas:

  1. They must recognise its versatility. It is a competitive fuel;
  2. It is abundantly available in and within the Asian/ME subcontinent;
  3. It has multiple uses and it is the “greenest” of all fossil fuels.

Second, the authorities must correct the current disincentivising policy distortions:

  1. The pricing of natural gas is, for instance, a potpourri of complexity. There are multiple price formulae.
  2. One for gas produced from domestic fields by the public sector companies; one for gas produced by private companies; one for production from deep waters offshore under high temperature etc.
  3. The taxation system is also comparably regressive. It is a cascading structure so that the tax rates increase as the gas flows from one zone to another.
  4. This means that customers located at a distance from the source of gas pay a higher price than those closer to the source.
  5. The result is the dampening of demand. Also, gas is not under GST.

Third, the authorities should revamp the structure of the industry:

  1. The Gas Authority of India Ltd (GAIL) is currently engaged in the production, transportation and marketing of gas.
  2. This allows GAIL to leverage its ownership of the bulk of the gas pipelines to deny its competitors access to the market. The policy calls for assured and common access to all marketers but GAIL can bend the policy to its advantage without breaching it.
  3. Most countries have tackled this conflict-of-interest situation by separating the upstream (production/import) and downstream (marketing) interests from transportation.
  4. GAIL should also be so “unbundled”. Its business activities should be limited to pipeline construction and transportation.

Finally, the institutional mechanism should be created to enable better coordination between the central and state governments.

  1. One reason why India has not yet constructed a national pipeline grid is because the Centre and state have clashed over issues like land acquisition, pipeline routing; and royalty payments.
  2. Centre-state differences have also delayed the construction of import facilities and the creation of gas markets.
  3. A way has to be found to take these issues off the political table and brought within the frame of an integrated decision-making process.

 

Conclusion:

India aims to increase the share of natural gas to 15% of the energy mix by 2030 which suggests a doubling of current demand and infrastructure needs, as part of a gas trading hub.

This will require the availability of transport capacity across India, which will enable all market players to access LNG supplies.

Overall, the policy of increasing the role of gas is commendable, as it results in health benefits (when substituting for traditional biomass for cooking) and decreased greenhouse gas emissions (when substituting for coal in power generation).

As the share of natural gas is on the rise, it is advisable to embark on developing a gas security policy based on a well-functioning domestic gas market and robust gas infrastructure.

The GoI should therefore promote the development of a functioning gas market that can allow supply to meet demand.

This includes market-based price discovery, robust gas infrastructure, an independent regulator, third-party access to infrastructure, and competition among multiple buyers and sellers.