Will natural gas play the game-changer in India's energy future?

Recent city gas rounds to bring in Rs 1.2 trillion investments in next ten years and push goal of achieving 15% share of natural gas in energy mix

In 2012-13, the share of natural gas in India's energy mix was around 10.5 per cent. Surprisingly, despite the fact that the Narendra Modi-led government had set a goal of taking this share to 15 per cent by 2022, the contribution of natural gas in the country's energy basket has declined to almost 6.5 per cent now.

The global average is 24 per cent and even within the country, in Gujarat, it is 25 per cent. With these dismal numbers, the target of becoming a gas-based economy appears a distant dream. A major reason for this is an almost static domestic natural gas production, which has risen only 0.7 per cent in the past 10 years, from 32,416.97 million metric standard cubic metre (mmscm) in 2007-08 to 32,649.31 mmscm in 2017-18.

As part of its effort to improve this, the ministry of petroleum and natural gas has taken several steps the past few years to improve domestic production, increase consumption and give a push to infrastructure development. The recent thrust on city gas distribution networks through the ninth and tenth round of auctions of new geographical areas (GA) can be seen as a step towards this. The two rounds are expected to fetch investments worth about Rs 1.2 trillion in the next ten years.

Hence, the move can be seen as a significant initiative to leapfrog to higher gas usage and address India's urban pollution. With the completion of the tenth round, CGD would be available in 228 GAs consisting of 402 districts spread over 27 States and Union territories, covering approximately 70 per cent of India’s population and 53 per cent of the country's geographical area. The success of the last two rounds can be calculated looking into the fact that the first eight rounds covered only 11 per cent of India's geographical area and barely 19 per cent of its population. Around 30 companies, including Adani Gas, Indian Oil Corporation (IOC), Hindustan Petroleum Corporation (HPCL), Gujarat Gas, Atlantic Gulf & Pacific Company (AG&P) and Gail Gas turned winners in the two rounds so far.

According to P P G Sharma, Managing Director of AG&P, the current CGD rounds are going to be a game-changer in India's move towards increasing its share of gas in energy basket. "This will bring in more investments to the sector. Availability of gas is not going to be an issue. For domestic consumers, the gas is being allocated on a priority basis, while for industrial players more LNG will be available in the pool in the near future,” Sharma told Business Standard. Total gas consumption during the month of January 2019 was 4,653 mmscm, of which the share of liquefied natural gas (LNG) was about 52 per cent. Major consumers of gas in India include fertiliser (29 per cent), power (22 per cent), CGD (18 per cent), refinery (11 per cent), and petrochemicals (six per cent).

According to a recent study by Ernst & Young, India’s energy consumption is expected to grow by 4.2 per cent a year and gas consumption by 5 per cent till 2040, to account for 11 per cent of global energy consumption. As of now, coal constitutes 58 per cent of the country's energy basket, followed by oil (29 per cent), natural gas (six per cent), renewables and hydro-electricity (six per cent) and nuclear energy (one per cent).

Interestingly, the push for clean energy by the petroleum ministry has also got a boost since the launch of Pradhan Mantri Ujjwala Yojana in May 2016. Owing to the success of this, the number of LPG consumers in the country also risen 77 per cent from 148 million on March 31, 2015 to 261.6 million now, reaching out to 90 per cent of Indian households. As of today, 69.5 million new consumers were added only under PMUY. 

Despite the skepticism, the petroleum ministry expects natural gas production to double to 71.92 billion cubic metre by 2021-22, from a mere 35.07 bcm now. India is pushing for gas to meet the country’s COP21 commitments on carbon emissions. It is also cheaper than liquid fuels such as petrol and diesel. 

Despite the focus on CGD and steps to increase production, industry experts such as R S Sharma, former chairman and managing director of Oil and Natural Gas Corporation (ONGC) believe that in the most optimistic scenario, by 2040, the share of natural gas in India's energy basket will reach about 12 per cent only.