Skepticism in India about gas, as a reliable energy source, derives from our compulsion to import incremental consumption. Chronic trade deficits, the philosophy of self-sufficiency, which prevailed till economic liberalization in 1991-92 and vast reserves of domestic coal militate against enhancing gas dependence.
Limiting import dependence is not just an Indian quirk
We are not alone in this strategy of limiting reliance on imported energy and diversifying our sources. Consider that India’s import dependence (38% 2019) and share of gas in primary energy (6% 2019) is not too dissimilar to other lower middle-income economies in the Indo-Pacific Region (BP Energy Statistics 2020).
Rapidly growing Vietnam only consumes what it produces even though gas is just 8% of primary energy. Bangladesh’s import dependence is low at 16% with a high share of 71% in primary energy. They are actively looking to diversify their energy profile to include more coal (from India) and hydro (from Nepal or Bhutan).
Indonesia’s import dependence is 38% with a share of 18% in primary energy. Thailand’s import dependence is 30% with a share of 33% in primary energy. China with its gigantic trade surpluses has a dependence of 42% and a share in primary energy of 8%.
Imported gas got a fillip via LNG
Gas as an imported energy resource acquired higher flexibility with growth of the LNG supply chain as opposed to natural gas pumped through pipes which is the primary mode for transfer in Europe and the US.
India got its first LNG import and regasification terminal in Dahej in 2004. The move to import LNG got an impetus because of the opening-up of the power sector to private sector in the late 1990s. The aborted ENRON project linked India into LNG supply chains. Gas is a cleaner fuel than coal or diesel so the shift to climate sensitive technologies also pushed the case for more gas in our incremental energy portfolio.
However our commitment to green our energy portfolio remained contingent on support from climate funds. In 2015 Prime Minister Modi departed from this defensive strategy.
Solar promises twin advantages – avoidance of import risk and carbon emissions
But maximizing use of a domestic resources, rather than opting for enhancing the share of gas, remained on top of his mind. Solar energy presented a domestic option and the PM pledged to ramp up renewable capacity to 40% (23% in 2019) of total power generation capacity by 2030.
Since then solar energy prices have crashed and electricity storage prices are decreasing. This technological disruption dilutes the niche role, envisaged earlier for gas, in reducing carbon emissions.
Gas-based power is more expensive than coal-based generation which cash starved distribution utilities can ill afford. Time of day pricing could advantage fast ramp up Gas power. But power purchase agreements remain undifferentiated for time of supply though the Indian Energy Exchange, trades 4% of grid electricity sales, offering a transparent albeit limited, short-term opportunity for merchant generators.
Politics also keeps coal mining alive. The dominant player here is the public sector monolith – Coal India Ltd which employs around 0.4 million people in India’s poorest region of Eastern India and produces 60% of the 538 million tonnes mined last year. The rest is mined by private companies which use coal as an input for generating their own electricity (captive consumption).
In June 2020, the government announced that it would auction forty-one new mines to the private sector for unfettered commercial use including sale in the market. This was a bold step towards liberalization of the coal sector which was nationalized in 1971-72.
The game plan is to sidestep the political cost of privatizing Coal India outright through legislation. A three-day strike on July 5 was organised by trade unions against this move with another strike targeted for August 18.
This strategy of incremental privatization has been used in the case of aviation successfully – though Air India still struggles on at an annual fiscal cost to government of Rs 3000 crores.
The power sector is another example of privatization by accretion. Facilitating new private generation in the noughties through transparent regulation led to 46% of the 370 GW capacity (May 2020) being in private hands along with 95% of the 87 GW renewable capacity.
Growth can create the competitive space for all energy sources
The good news is that India’s energy consumption is set to grow. The Energy Policy 2005-06 (Planning Commission) forecast growth of primary commercial energy at 6% per annum to 907 million tonnes of oil equivalent by 2021-22 and 1651 mtoe by 2031.
The more recent Draft Energy Policy 2017 (Niti Ayog) continues this trend line till 2040 with a constant 9% share for gas from 2022 onwards but a share for renewable electricity (including hydro) increasing from 20% in 2022 to 26% by 2040.
Two conclusions stand out by comparing these two documents written a decade apart. First, the pessimism on gas as a source of clean energy continues. Second, technological competitiveness will be key for determining market share.
In 2005 gas prices had peaked to a high of $13.43 (October) per Million Btu. In 2017 they varied between $2.82 to 3.15 – still too high to beat coal and not low enough to keep solar energy at bay. By June 2020, the gas price was down to a competitive $1.63.
More significantly, the gas market is now more flexible in contracting for supply and managing risk (derivatives and swaps). These developments rebalance risk in favor of consumers.
Don’t write gas off
Natural Gas might still give solar a run for its money till the cost of electricity storage reduces significantly – projected by 2040. Of course, it does not need to be an either-or choice. Both technologies can co-exist and grow to the detriment of imported oil.
LNG is a suitable fuel for powering heavy vehicles with the same energy density as diesel but minus the carbon emissions. The use of Hydrogen gas spiked CNG (Compressed Natural Gas) is already being piloted for city buses in New Delhi by the public sector behemoth -Indian Oil Corporation.
The grid for supply of PNG (Pressurised Natural Gas) in urban areas and the supply network of LPG (Liquified Petroleum Gas) in cylinders for rural areas is growing in anticipation of gas being a preferred fuel for cooking, as incomes improve.
Niche opportunities also exist, says Saurabh Kumar, Managing Director of EESL – the forward looking public sector company which popularized low cost LED bulbs – for clean, gas based decentralized trigeneration of electricity, cooling and heating services in urban enclaves like industrial parks and upscale housing complexes.
India’s growing energy profile will remain a smorgasbord of energy sources competing for market share with the lowest cost, relatively clean option, having a head start over others per the value-for-money preference of our domestic consumers.
Also available at TOI Blogs July 9, 2020 https://timesofindia.indiatimes.com/blogs/opinion-india/indias-clean-energy-sweep-stakes/