Accelerating India's energy transition

Under any future energy scenario, India continues to be a net importer of primary energy, especially oil and gas. The imports of oil and gas, according to estimates from the International Energy Agency, consistently exceed 50 per cent. This situation is undesirable for the health of the macro-economy and it exposes India to extreme uncertainty, not only in terms of prices, but, more critically, also in terms of security of supply. One must heed the calls of former Prime Minister Manmohan Singh and Prime Minister Narendra Modi, who said “Energy security is national security”. To become a superpower in the modern times, energy independence must be one of our key policy goals.

 
 Over the last two decades, India has been progressing well in the deployment of renewable energy. There are, however, risks in relying solely on this single-pronged solution for all major sectors. India must strategically position bets across multiple technologies and energy sources over the next couple of decades, a period in which we have to leverage our “once-in-a-life-time “ demographic advantage”. The consequent growth burst will help facilitate a smoother glide-path into the transition and help us avoid the trap of prolonged poverty and consequent social upheavals. Mr Modi has provided a pragmatic framework and bookends for this transition by 2070. One must use this period strategically and wisely.

 
 Developed countries are advocating for no-carbon fuels as the only way forward. It should, however, be recognised that low-carbon intensity pathways are superior strategies towards net zero for developing countries. One of the key fuels of this glide-path would be natural gas, which is a “greener”, low-carbon intensity option. The contours and evolution of the sector globally and in India are a tale of “two distinct cities”: One, where gas has flourished and occupied the space as a responsible “bridge” fuel until renewables take centre stage, and the other, where inconsistent policy miasma and market signals have hampered the growth of a gas-based economy. Unfortunately, India falls in the latter category, and consequently natural gas today represents a mere 6-7 per cent of total energy consumption vis-à-vis the global average of almost 25 per cent, and our own stated ambitions of 23-25 per cent and an intermediate target of 15 per cent.

 

 One of the key lacunae of India’s policy approach to gas has been derived from a mindset of resource shortage and treating it as non-tradeable. The consequent policy choices related to allocation and under-pricing only reinforce this scarcity phenomenon, thus landing India in a perennially “short” position. It is important to realise that natural gas is now a traded commodity experiencing high growth due to the increasing gas production globally. A national level debate and a cogent hydrocarbon and gas policy will go a long way in establishing and creating comfort in the different constituencies regarding the economic and security benefits of responsible and sustainable exploitation of our natural gas resources.

 
 The areas that need immediate attention are the creation of a stable fiscal framework in keeping with the risk and reward paradigm of India, a pricing mechanism that is market facing, "fairly" pricing our resources, a market structure that exemplifies fair competition, governance and administrative structures that evoke confidence and policies that facilitate the creation of an ecosystem consistent with the spirit of cooperative federalism. To achieve these desirable objectives, we propose a five-pronged strategy based on international best practices and our assessment of their feasibility in our institutional framework.
 
 Firstly, we must clearly and definitively move to a production sharing contractual (PSC) system. This is especially urgent given the concerns around materiality and risk associated with our hydrocarbon basins. This is sine qua non to unfetter the upstream sector and bring in the much-needed risk capital and expertise to explore and develop our basins, especially for gas. The experience of Mexico in moving to a PSC is elucidative, with very enthusiastic participation of the private sector, with many international companies, including supermajors (BP, Total, ExxonMobil, ENI, etc) in consortia with Mexican players bidding in onshore, shallow water and deep-water auctions.

 
 Second, one needs to adopt a time-bound programme to dismantle the administered pricing controls, including the multiple consumer prices for natural gas, and bring it in line with LNG. This provides a transparent and market-driven signal to both producers and consumers. Producers and consumers both benefit from clarity and can “live and die” by market dynamics.
 
 Third, it is critical to unbundle transportation and marketing of the key incumbent in the natural gas sector, create a rules-based “natural” transportation monopoly with an infrastructure-class risk profile and allow the consumers to benefit from a liberalised marketing environment. The creation of a national natural gas pipeline network will promote stability of the system and enhance security of supply through domestic sources, imported (i.e. LNG) or overland pipelines or international sub-sea pipelines from both the coasts.

 
 Fourth, it is important to ensure the viability of gas-based power through policy reform in the electricity markets through the creation of instruments such as time-of-day pricing and non-linear pricing to allow markets to absorb the more flexible gas-based power.
 
 Fifth, we should unleash the power of gas-based micro-grids that are both efficient and responsible from the broader perspective of the climate agenda and simultaneously strengthen the decentralisation of policymaking.
 
 Finally, it is time to resuscitate the discussion on creating a sub-sea corridor that connects key gas producing nations in the Gulf region with India as one of the largest sink markets of the future. In a region fraught with complexity, this will bring much-required symmetric inter-dependence and contribute significantly to national energy security and regional stability as a “peacebuilding” fuel.

 Given our promises as part of the Paris Accord, providing these tailwinds is both an economic and moral imperative.
 
The writers are, respectively, vice-president of the Pune International Centre, and  managing director and senior partner with the Boston Consulting Group, India. The views are personal