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Natural gas in India- Opportunities, challenges and recommendations

  • Category
    Economy
  • Published
    28th Dec, 2021

Context

In 2016, India has set up ambitious targets for expansion of natural gas capacity and utilization. However, five years down the line, the target looks unrealistic, and unachievable. There is a need to evaluate the present status, challenges and way ahead to move towards a gas based economy.

Background

  • The idea of making India ‘a gas-based economy’ was initiated in 2016, when the dream of a golden age of gas was fresh and promising.
  • The quantitative task under this narrative was to increase the share of gas in India’s primary energy basket from about 6 percent in 2016 to 15 percent by 2030.

IEA’s dream of golden age

  • In 2011, the International Energy Agency (IEA) brought out a special report titled “Are we entering a golden age of natural gas?”
  • The IEA’s expectation of a golden age of natural gas, though cautious as captured by a question mark, was based on assumptions of

(a)    an increase in gas use in China

(b)    greater use of natural gas in transportation

(c)    slower growth in nuclear power capacity, and most importantly

(d)    an optimistic outlook for gas supply from unconventional gas resources at relatively low cost

  • That year, natural gas production from the United States at 617.4 billion cubic meters (BCM) exceeded natural gas production from the Russian Federation (616.8 BCM), until then the world’s largest gas producer.

Analysis

What is Gas based economy?

  • A gas based economy refers to the economy, in which natural gas is the major constituent in energy mix of the country.

Current state of gas based economy

  • According to central government, at present, about a 16,788 kilometre-long natural gas pipeline is operational and is expected to double over the next few years to exceed 32,000 km.
  • At present, city gas distribution (CGD) currently supplies to 7 million customers.
  • Share of natural gas in India’s energy basket is ~ 6% as against the world’s average share of 23%

Why natural gas is important for India?

  • Economic benefits-
    • India is largely dependent on import of fossil to meet energy needs. Adoption of natural gas will reduce import costs and thus foreign exchange.
    • It will create new employment opportunities to harness demographic dividend.
    • It can provide farmers a sufficient supply of cheap fertilizer.
  • Environmental benefits-
    • It will help in achieving target of increasing non fossil fuel energy consumption to 40% by 2030.
    • This can help the country in fighting across India and mainly in air pollution in Delhi-NCR.
  • Social benefits-
    • It will tackle health challenges due to rise in pollution by fossil fuels. AS per WHO, estimates that globally about seven million people die prematurely each year from diseases linked to air pollution
    • Child development- According to the Environmental Protection Agency (EPA), the levels of indoor air pollutants can be two to five times higher than outdoors, thus adversely affecting small children.

Government steps in this direction

  • One nation one gas grid’ programme is aimed at developing the natural gas pipeline across the country which will increase accessibility & availability and reduce prices of natural gas.
  • According to the government, an estimated $60 billion will be invested for developing “One Nation One Gas Grid”
  • Pradhan Mantri Urja Ganga Gas Pipeline is being developed to lay natural gas pipeline for a length of around 3384 Km. The unit would reduce the nation’s dependence on imports for lube based oils
  • Key targets-
    • According to IEA’s India Energy Outlook, India will emerge as the third largest energy consumer behind the US and China by 2030.
    • In 2016, India has set up target of raising the share of natural gas from 6% to 15% by 2030.
  • The government is focused on framing a policy on Natural Gas Marketing Reforms to achieve a market price discovery of gas.

Challenges associated with the sector

  • Pricing related policy challenges-
    • Clean fuels — electricity and natural gas — had remained unaffordable and unreliable for industrial users compared to coal.
    • Taxation had clearly remained an impediment for wide adoption of adoption of natural gas.
    • The policy of administered price mechanism (APM) for a large percent of natural gas creates obstacles for wider adoption.
  • Limited reserves- The resources of natural gas are limited in India and more than 50% is imported in the form of LNG (Liquefied natural gas)
  • Growing alternatives- The development of solar energy at a cheaper cost and focus on electrical vehicles challenges scope of natural for use in transportation.
  • While use of natural gas has increased in transportation and petrochemicals, it has reduced in power generation and fertilizer industry.
  • Reduced consumption- According to government, natural gas consumption fell by about 1 percent in 2011-2019 and the share of gas in India’s primary energy basket fell from its peak of 9.4 percent in 2010 to 6.29 percent in 2019.

Way forward and recommendations

  • Reforms in pricing and taxation policy- The current pricing regime remain unattractive for new investments and existence of two different prices makes accurate demand forecasts difficult. It can be brought under GST. Incorporation of a floor and a ceiling will result in balancing and incentivising production with protecting consumer interests
  • Effective utilisation of current assets- Low utilization increases cost to customers, erodes profitability and creates non-performing assets. The Parliament Standing Committee on Energy’s report has identified 14.3 GW of stranded gas-based plants with an investment of over ?650 billion. The centre, state, and private sector must collaborate to increase utilization of gas-based plants
  • Reducing gas leakage- There is a need to build new infrastructure utilising the best technology can aid in preventing gas leakage. Methane has 84-86 times greater warming potency than carbon-di-oxide (CO2), when measured over a 20-year period.
  • Strategic natural gas reserves- AS natural gas is largely imported, India can set up strategic reserves for natural gas on the lines of petroleum reserves. It can help to manage prices fluctuation globally.
  • Sector specific policy- To channelize use of natural gas in industries where the demand is consistent and long term such as fertilizer industry.

Conclusion

The goal to achieve energy security for India by 2047 can only be achieved by using multiple sources of energy. The natural gas with its larger availability, economic pricing and environmental benefits provides a good source of energy and thus, it is necessary to boost steps to achieve target to increase share of natural gas in energy mix to 15% by 2030.

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