High prices could slow India’s transition to gas

Reuters New Delhi | Updated on October 21, 2021

LNG under long-term deals costs about $11–12 per mmBtu against more than $38 per mmBtu on Asia’s spot gas LNG-AS market currently

High prices threaten India’s goal to boost the use of gas in its energy mix as some industries look at switching back to coal and pet coke, a top bureaucrat in the Oil Ministry said on Wednesday.

Prime Minister Narendra Modi has set a target to raise the share of natural gas in the country’s energy mix to 15 per cent by 2030 from about 6.2 per cent now to cut India’s carbon footprint.

Intermediary use of gas

In the long run, India wants to raise the use of renewables and biofuels and had turned to the use of natural gas in the “intermediate period” despite holding vast reserves of coal, Oil Secretary Tarun Kapoor said at the India Energy Forum.

Also see: Oil & gas: PM explores areas of investment with CEOs

“Now this very high gas price has given us a message that probably we can not rely on natural gas. The rather basic question now is can we rely on imports,” Kapoor said.

High Asia prices

Liquefied natural gas (LNG) under long-term deals costs about $11–12 per million British thermal units (mmBtu), versus more than $38 per mmBtu on Asia’s spot gas LNG-AS market currently and a record high of over $56 hit earlier this month.

To cut its carbon footprint, India allowed some consumers to shift to gas. Kapoor said these industries might switch back to coal and pet coke due to the higher gas prices. Pet coke, short for petroleum coke, is a byproduct of the oil-refining process.

India, the world’s third biggest oil consumers and importer, is also exploring strategies to cut its crude import bill including asking companies to jointly negotiate for oil purchase contracts.

Also see: India plans refiners’ joint oil deals to cut import bill

Kapoor said Indian refiners should look at having long-term oil contracts of more than one year’s duration with a fixed, or near to fixed, price component.

“In oil, term contract is just a one-year contract and it is not a fixed-price contract,” Kapoor said.

“The contract can be fixed-price or linked to some index which is not so volatile. It is just a question of reducing risk,” he added.

Published on October 21, 2021

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