Natural Gas as 15 % of Primary Energy Mix: An ambitious Indian target and bouncy pathway

by Dr. Anand Kumar Tewari, Former Executive Director, Indian Oil Corporation

Preamble

India a third largest consumer of energy after USA and China. India is a major force in global energy economy with growth rate centering on 5% per annum, propelled by growing population, industrialization and rapid urbanization. Over 80 % of energy need is met by three fuels Coal, Oil and Solid bio mass. Coal remains the largest single fuel in the energy mix on account of largest share in electricity generation. Oil consumption and imports have progressively gone up, due to rising vehicle ownership and road transport. Bio mass mainly fuel wood used for cooking, is on declining path. The larger penetration of LPG under PMUY scheme enabled the rural India gradually switching over to cleaner fuel. Natural gas and renewable energy have picked up the momentum, were also least affected during COVID -19 crisis. Renewable energy (RE) has huge potential for country, high ambitions, road map and matching policy support and technology, has reduced, the cost of renewable energy thus becoming cheapest input for electricity generation.

India is third largest CO2 emitter after China and US with estimated emission of 2.6 Giga tons per annum (gtpa). Government of India has committed for reduction in CO2 emission by 50 % by 2050. As per BP statistical review of world energy published in June 2022, 82 % of global energy needs are met through fossil fuel about 89 % for India. The climate related disasters happening all over world would continue, unless rise in global temperature is checked, through major energy transition i.e involving larger share of renewable energy. Power sector in India itself contributes nearly 1/3rd of the total emission.  Thus the carbon intensity of power sector is well above the global average. The particulate matter emission, which responsible for poor air quality, has also become social and environmental issue. Accordingly, India has decided to strongly adopt sustainable energy future for better quality of life and climate control. Our PM announced in COP26 that India aims to achieve net zero emission by 2070. Accordingly efforts are made for de-carbonization of power sector. Today of the installed power generation capacity of both state and center put together is 416 GW, out of same, RE along other non-fossil fuel including hydro power have reached  43 % of the total installed capacity of power generation.. RE has many advantages but nature of intermittency, weather dependency and coping up peak load, requires active supplementary sources too. The natural gas constitutes nearly 6 % of the installed power generate capacity with around 29 GW of installed capacity.

Present status:

India as an expanding economy of presently $ 3.5 trillion and aspiring to be $ 5.0 trillion economy within a short period. The growing population, faster urbanization, changing life style and industrialization, are key energy growth drivers among others. India has drawn up road map of becoming developed country by 2047. However, the energy mix primarily remained coal dominant, which had been major impediment to deep de-carbonization objectives of the country. India is import dependent country for energy needs, it imports 85 % of its crude oil requirement, nearly 50% of Natural gas as LNG and nearly 50-55% % of LPG also. Being largely import dependent, energy is price sensitive also, it affects the growth, adoption and consumption pattern, despite of having inherent price elasticity.  De-carbonization and diversification of energy sector assumes top priority for combating emission and climate change for India. India targeted to become gas based economy by increasing its share from present 6.4 % to 15 % of primary energy mix by 2030. The share of gas in Indian energy basket was 5.6 % in 2012-13 around 6.4% in 2021, despite of substantial increase in the energy consumption, which indicates relatively slower progress for meeting target than expected. Considering overall growth pattern in post Covid energy consumption,  natural gas in terms of volumes, has to increase many times to occupy the share of 15% of primary energy mix.

India has historically facing high gas prices with relatively stagnant domestic production. The price sensitivity and low and high gas prices , would primarily determine the uses of natural gas for power generation as renewable energy base power generation becomes cost competitive with no emission (Natural gas also a fossil fuel, too have emission but  far lesser than Coal and biomass  or oil based generation). For making India as gas based economy, huge infrastructure is required which has been developing over last four decades and in recent past accelerating at unprecedented rate. With the emergence of regulator PNGRB in 2007, the activities have been speeded up and within 15 years of regulators existence , the entire country, divided into Geographical Areas (GA) have been allotted for CGD network to reach natural gas in every part of country. The market of natural gas is being created by expansion of gas infrastructure, including City Gas Distribution, Gas Grid Network and establishment of LNG retail outlets. Accordingly the gas trunk pipeline, LNG import terminals have been developed. The vast Indian Coast line facilitated LNG import through these terminals.  Presently India has six operating LNG terminal with combined capacity of 42.7 MMT, more than 21000 Kms of Operating Gas Pipelines, more than 12000 Kms of the pipelines under construction etc nearly 5100 CNG stations besides LNG filling stations for long haul fleets, over 1.0 crores PNG domestic connections , nearly 38000 commercial and 15,000 industrial connections. The LNG import / regasification capacity is likely to go up to 70 MMTPA by 2030, to meet the larger share of gas.  The infrastructure is expanding to cover every nook and corner of the country and Indian regulator developed policy frame work for supporting the expansion and increasing share of Natural gas,  including facilitating import under OGL category, FDI 100 % through automatic route for LNG infrastructure, Installation of Gas exchange for trading etc. might  be a game changer in future. The concept of One Nation One Grid and Unified Tariff regime would favorably boost to gas consumption. Additionally, the nation has adopted a gas allocation policy to support some priority sectors such as CGD, fertilizer, and power. India has multiple price regimes for natural gas at present but aspire to unify the same in future within couple of years.

Though the target of 15 % natural gas, in the primary energy mix seems still a distant dream even under low gas price (LGP) regime, but in low price band penetration is expected around 21 per cent in 2050. The low price targets unrealistic low prices during peak of pandemic around 2USD/mmbtu. Hence, it is evident that low gas prices offer great influence for gas adoption, but infrastructure remains a hurdle and needs upgrade to cope up. Though after discovery of shale gas in USA in 2015, gas prices witnessed down trend and during Covid -19 the consumption, crippled down, however, sustainability of low price over long term, is equally questionable. So far sector is concerned it may be noted that increasing share of gas doesn’t mean that the importance of coal diminishes for the Indian economy.

The snapshot of various scenarios and reports are captured to ascertain the percentage of primary energy mix the natural gas in India is expected by targeted line of 2030. Even if target is not  fully met, the Natural gas as transition fuel is going to play a dominant role in Indian energy horizon particularly considering our commitment to Paris Climate protocol, SDGs implementation  and emission intensity control.  

Percentage of Natural Gas as primary energy Mix of India

Sr No.1.. High Gas Price scenario indicating the gas as 6.4 % of Primary Energy mix (in High gas price scenario, price in the range of $12-16 /mmbtu) (In this case if higher prices are maintained India May miss target by 9 %)-- 6.4%

Sr N0.2 : Low Gas Scenario ( During Pandemic prices crashed as low as $2/mmbtu particularly spot prices , which required re-negotiation of  long term contracts during 2020-21 ) Even in this likely to miss the target by narrow margin With current domestically produced Indian natural gas $8.57 /mmbtu and $12.12/mmbtu, lower international prices seems practically difficult , though encouraging  scenario,( International prices hovering around $11 /mmbtu in May 2023) -- 12 %

Sr No 3 : International Energy Agency Report ( 2019)-- 7%

Sr No.4 :BP Statistics (2020)-- 8 % by 2040

Sr No 5: BP Energy outlook 2023 -- 7-11% by 2050

Sr No.6: World Oil Outlook ( 2018) by OPEC -- 7.7 % by 2040

Sr No.7: India Energy Security Scenario 2047 - 12 % by 2040

Sr No.8 :World Energy Projection System +-- 17-18 % by 2040

Sr No.9 : Shell LNG Outlook 2019 and Woodmac-- 5-10 % by 2035

Path forward;

While the tremendous progress has been made for increasing Natural Gas share in domestic, industry, commercial and transport sector. However, the creation of infrastructure suitable for import, regasification, transportation and distribution, requires almost multiplying manifold to cope up with ever increasing energy need. Besides the conventional domain new areas like Iron & Steel and Cement could be potential sector for consumption of natural gas, it has potential to meet 27 % of its energy requirement through gas by 2047. In CGD sector nearly 45% of urban house hold are expected to consume natural gas by 2047 in addition different segment of vehicles would adopt the gas in transport sector. The power sector, though has high potential but the cost competitiveness compared to coal and rapidly declining cost of renewable energy, makes, challenging to increase gas share in power generation. Slowly, other industry in MSME sector would be targeted for lager gas penetration. With increasing population, we understand that we recently surpassed the China to become most populous nation,  the growing energy demand would focus for less emitter, sustainable, affordable energy. This requires boosting domestic production. The cost of gas compared to other alternative fuel/ EVs operationalized cost, would continue to play role for growth of natural gas in transport segment. Further CNG stations requires massive expansion to reduce queuing and waiting time for vehicles. LNG stations have high potential and Government has already notified emission standards for LNG as transport fuel in 2017, notified mass emission norms for agricultural tractors, construction equipment, and combined harvesters driven by dual fuel diesel for replacing with Liquefied Natural Gas (LNG) engines however, the ease of fueling LNG for long haul trucks, tractors, other construction equipment and machinery requires massive push.

India Efforts of de-carbonization of energy sector: As discussed earlier India is import dependent country for its energy needs, so while targeting de-carbonization India also aims to substitute part of its requirement through indigenous sources. Some of the key initiatives listed below in the past can largely be attributed to the same.

A. Ethanol blending in MS (Petrol) : India consumes nearly 30 MMTPA of MS . The 10 % target has already been met with last year Dec- March 2023 average being 11.3 %. India Already announced 20 % ethanol blending through domestically produced ethanol.

B. Bio Gas : India under SATAT ( sustainable Alterative Towards affordable Transportation ) announced in 2018 for alternative bio gas for utilization as fuel which is to be produced from food waste, agro waste for target production of 15 MMT of CBG from 5000 plants

C. Electric Vehicles: Promotion and policy support both for public and private transport and two wheelers with manufacturing base in India

D.Renewable Energy: 175 GW target of RE by 2022 and 450 GW by 2030 for cost competitive electricity for EVs and green hydrogen.

E. National Hydrogen Mission: Government of India announced National Hydrogen Mission as game changer for energy industry. Under the mission massive allocation and ambitious target have been made i.e 5 MMTPA capacity by 2030. Electrolyzers manufacturing incentives ad sourcing renewable energy incentives including purchase obligations. The hydrogen blending in natural gas has been successfully done for use in IC engines and blending in natural gas distribution pipeline have been done on pilot basis in India and various other countries. Needless to mention that hydrogen is future fuel for surface transport, power generation, industrial applications including hard to abate sector like steel and cement also,. Hydrogen as fuel for marine transport and aviation sector is on horizon.

F. Other alternate Fuels: Bio diesel from plant produce, Hydrogen from waste, recycling/ refining used cooking oil as fuel etc.

G.Coal gasification and CBM exploration: Government of India has provided substantial outlay and supporting policy for coal gasification under National Coal gasification mission for 100 MT coal gasification by 2030. and also providing  incentive for increasing CBM production

Summary:

The initiatives on the part of Government like unbundling of sales of gas and transportation, open access to transportation have allowed gas users to make direct arrangement with producers for their supplies besides regular efforts of boosting domestic production.  The unified tariff for transportation, one nation one grid, would certainly encourage and boost the consumption of gas to many folds, but for greater penetration requires addressing hard to abate sector like steel, cement, large scale power generation, which may ensure quantum jumps but creation of matching infrastructure would be essential.

The Indian power sector could be potential sector for natural gas utilization and increasing its share but doesn’t seems to be cost effective in long run. The natural gas per kwh produces 65 % less emission than coal and 25 % less emission than oil. Though environmentally attractive option but limitations in terms of economics.

The electricity cost consists of capital plus variable cost (variable is mainly fuel cost). With gas prices considering average $ 8/mmbtu , the electricity generation cost would be around INR 4.00/ kwh , whereas renewable energy cost may range from INR 2.75 to 3.00/ kwh. RE prices becoming comparable with coal cost, across most of the part in India. Coal generation cost varies with location like pithead INR 1.30/ Kwh at a reasonable distance INR 3.00/ kWh etc. India’s per capita power consumption is 1/10th of the developed world economies and same would be doubled by 2040, coal would be still a main source, hence Government’s larger focus of coal gasification. Coal will play important role in energy mix of country till 2040 and beyond. It is pertinent to mention India has couple of month’s back, auctioned highest number of coal mines for increasing coal production, as coal being cheaper alternatives compared to natural gas for power generation. However with gasification and emission control would be viable energy source, until emergence of promising, cost effective  and sustainable alternative.

Regarding  hydrogen production  as energy carrier, efforts are being multiplied and green hydrogen cost,  expected to reduce with cost effective generation of RE and also setting up electrolysers manufacturing base in India. Additionally blue hydrogen is likely,  would also co-exist for reasonable time with focus on carbon capture. The water stress for green hydrogen production, is likely to be addressed through application of suitability of all  types of water for splitting.  The pilot studies for blending hydrogen in Natural gas distribution Pipelines are under way both in India, Europe, Canada, Australia and USA etc. The blend up to 20-25 % of hydrogen by volume appears to the practically viable without having any significant affect either on pipeline steel, elastomers, PE pipes etc. Hence the existing infrastructure of gas can be utilized for blending hydrogen with effective re- assessment and mitigation of risk. This indicates that hydrogen would replacing part of natural gas in due course. Niti Ayog is in their report on Carbon Capture Utilization and Storage (CCUS) highlighted that India has vast potential for CCS or CCUS and drawn up an ambitious plan for carbon capturing at source from power plant and other industries. This would also boost the production of blue hydrogen (Production of hydrogen from fossil fuel like Natural Gas / Naptha with carbon capture), which is cost effective option compared to green hydrogen. Government of India’s policy support for RE and Hydrogen, has attracted massive investment by private players besides public sectors, it shall go a long way in de-carbonizing the energy sector.  If the hydrogen substitutes the natural gas partially, then massive expansion of CGD Network by PNGRB i.e to cover 96% GA / 86% of country’s population would be handy in capturing low hanging fruits.  India’s natural gas infrastructure thus be agile and planned in such a way that it can be repurposed for renewable and green hydrogen technologies at later date. It should also have a plan for a hybrid future, where hydrogen will grow, and India's gas ecosystem enables a shift to hydrogen, perhaps initially through blending both natural gas and green hydrogen.

Conclusion:

The higher gas penetration would not only de-carbonize the energy sector but also clean our air we breathe, besides it has high potential for generating employment for semi-skilled and skilled workforce. The Government of India’s policy of allocation of gas to priority sector has own advantages and limitations. Whether we reach to target of 15% by end of decade or not but massive push approach would certainly not only clean our air but also helps our contribution to Sustainable development Goals (SDGs) and limiting 20 C scenario of earth temperature. Simultaneous push for hydrogen, less emitting fuels would be game changer for energy sector. As we intend to become developed country by 2047, we owe our commitment not to Paris protocol, but taking responsibility to save our mother earth, being maximum populated nation. Natural gas has major role to play in the time to come so as linked infrastructure.  Future of Natural gas in India is clearly function of infrastructure, policy frame work, domestic production and ultimate gas price at consumer end .However, it could be a transition fuel until renewable energy supply expands and clean alternative like green hydrogen becomes commercially, sustainably and technically  viable. Thanks for reading..

Author is over 40 years’ experience in Oil & gas pipelines, can be reached for valued comments: [email protected]

References:

·       India’s Natural Gas Future Amid Changing Global Energy Dynamics by Ankur Malyan, Poonam Nagar Koti, Nitin Maurya, Diptiranjan Mahapatra, and Vaibhav Chaturvedi

·      IEA; India Energy Outlook 2021

·      Other Web Resources

·      https://powermin.gov.in/en/content/power-sector-glance-all-India

·      NITI Ayog CCUS Policy Frame work Nov 2022

·      BP Statistical Review 2020  and 2022

·      Gas Statistics April 2023 by NGS India