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Press Release [FREE Access]
Petro Intelligence » Natural Gas: Still Dreaming Big

By R. Sasankan

India's natural gas sector has always been clouded by a fog of ambition and deceit. For far too long, a bunch of dubious experts have tried to foist the notion that natural gas can increase its heft in the country's energy mix even though the odds are stacked against such a possibility.

Back in 2016, a couple of so-called experts envisioned a world where natural gas would fatten on demand for this fossil fuel option, raising its share in the country's primary energy basket from 6.14% in 2016 to 15% by 2030. These experts convinced Prme Minister Narendra Modi to buy into their dreams.

 We have been down this road before. While sitting down to write this column, I was struck by the thought that a nation that forgets its history is condemned to repeat its mistakes.

Let me explain: Back in the 1980s, India embarked on its first major gas project - the much-hyped, 1400 km-long, Rs 14 billion Hazira-Bijaipur-Jagadishpur (HBJ) gas pipeline that would transport gas from South Bassein field in Mumbai offshore to six fertilizer projects in the north Indian states. As it was a World Bank-aided project, the pipeline was executed in time by the French company, Spie Capag. But the cruel truth was that the pipeline remained totally unutilized for close to five years because not even the foundation stones for the fertilizer projects had been laid by then.

I had the privilege of breaking the HBJ gas pipeline story for The Economic Times with which I was associated then and subsequently chronicle its woes because of the bungling by bureaucrats and other experts. The 15 per cent target for natural gas in the energy mix is increasingly looking far-fetched and overblown. As of October 2023, the Petroleum and Natural Gas Regulatory Board (PNGRB) reported that India's share of natural gas in the energy mix stood at 5.78%. The BP Energy Outlook 2023 projects that India's natural gas share will only reach 7-11% by 2050. The Organization of the Petroleum Exporting Countries (OPEC) projects that it will reach 10.6% by 2045.

None of these forecasts indicate that the target is feasible by 2050 - leave alone 2030. How come India's energy experts have gone so wide of the mark? It is an acknowledged fact that there are quite a few charlatans masquerading as energy pundits. Their 'expertise' has landed the country in a mess before. And yet we are drawn in by their glib talk and fanciful assumptions.

And here is the big surprise: India's energy sector has no reliable estimate of natural gas demand. India is a highly price-sensitive market and the demand for gas depends on prices. The energy pundits work out their estimates through some dodgy calculations based on the projections of certain major user industries. And we must not forget that domestic gas production is unable to meet even 50 per cent of the domestic demand.

So, did the energy experts bungle the pricing of natural gas? I am not competent to sit in judgment over this contentious issue. However, our experience shows that there was something horribly wrong with the pricing from the very beginning.

A power-starved nation like India has jumped at the idea of setting up gas-based power plants to overcome the acute power shortages in the country. Quite a few gas-based power plants were set up but almost all of them remain idle as cash-strapped state-run electricity boards cannot afford to pay for the costly gas-based power. This is the Indian reality.

"I am yet to see a concrete plan seeking to raise the share of gas in the energy-mix," said a top energy expert who was with the government until a few years ago. He is emphatic that the fuzzy dream can never become a reality because of the prevailing gas prices in India. At these prices, the end-use of gas will be limited to the fertilizer and transport sector with some of it used as cooking gas. This will confine its use by commercial establishments and the richest 20% of the population. The combined demand from these segments that have the capacity to pay the prevailing prices cannot reach 15% of the country's primary energy consumption.

Natural gas should reach a large section of the economy and this cannot happen at the prevailing price. Blame it all on the gas pricing mechanism that the country adopted decades ago. The APM (administered pricing mechanism) formula was based on the weighted average price of four producer markets: the US, Canada, Russia, and the UK. The prices of locally produced natural gas were fixed every two years with a quarter's time lag. No one bothered to ask: was this the right one for the Indian market?

As per the new formula, the price of the gas produced domestically will be 10% of the monthly average of the Indian crude basket and notified on a monthly basis.

The new formula has also failed to stimulate the market. Petronet LNG's boss Akshay Kumar Singh is among the very few who understand the basic problem in cranking up the share of natural gas to 15% when he says that it will depend on the ability to set an affordable price.

Permit me now to conclude the column with a quote from a recent media report: "During October 2023-February 2024, India's cumulative natural gas consumption rose by 17 per cent y-o-y to 28.12 BCM. In the 2023 calendar year, the consumption stood at 60.12 BCM. The world's fourth largest importer of liquefied natural gas (LNG) consumed 66.63 BCM of natural gas in FY24, compared to 59.97 BCM and 64.16 BCM in FY23 and FY22, respectively".

The LNG spot price touched an all-time high in 2022, forcing a drastic drop in LNG imports. India's LNG import goes up whenever the spot LNG price drops. Even the present low LNG price is way too high for the Indian market. The goal of a 15% market share for natural gas looks like a distant dream. The only sensible option for the government is to revise the target down to a realistic level and rework the pricing policy with the help of genuine energy experts.



To download the latest issue 'Volume 31 Issue 3 - May 10, 2024', click here
Petro Intelligence [FREE Access]
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