Boosting the gas economy

Gaurav Bhatiani/Vikram Rao | Updated on June 29, 2021

Pricing reforms and infrastructure hold the key

India will emerge as the third largest energy consumer behind the US and China by 2030, according to IEA’s recently released India Energy Outlook. Natural gas is expected to be the fastest growing fossil fuel, in sync with the government’s aim of developing a gas-based economy, raising its share from 6 per cent to 15 per cent by 2030.

Increasing natural gas in the power sector will also help scale-up renewable energy to 450 GW by 2030. A series of policy initiatives in the last two years, including open access to the pipeline network, launch of a gas exchange and marketing reforms, points to the government’s commitment to move towards cleaner fuels.

Investments in infrastructure will crucially enable this transition. According to the Minister of Petroleum and Natural Gas, an estimated $60 billion will be invested for developing “One Nation One Gas Grid”. Pipeline length will double over the next few years to exceed 32,000 km. In addition, city gas distribution (CGD) currently supplies to 7 million customers and is expected to expand. Next bidding round (11th) plans to extend connectivity to additional 100 districts, reaching 500 districts over the next few years.

There are three critical steps needed to boost the adoption of natural gas.

First and foremost is pricing and taxation reform. The marketing reform of October 2020 provides a starting point. However, the pricing regime remains unattractive for new investments and existence of two different prices makes accurate demand forecasts difficult.

At current prices, producers are unlikely to invest in new exploration and production. So there is a dire need to review of the pricing formula. Incorporation of a floor and a ceiling will balance incentivising production with protecting consumer interests and is recommended. Cascading taxation disincentivises consumption and must be brought under GST.

Second, there is a need to increase the utilisation of current assets. The Parliament Standing Committee on Energy’s report has identified 14.3 GW of stranded gas-based plants with an investment of over ₹650 billion, most of it lent by banks. Capacity utilisation of LNG terminals such as in the case of Ennore and Kochi is another concern. Low utilization increases cost to customers, erodes profitability and creates non-performing assets. The centre, state, and private sector must collaborate to increase utilization of gas-based plants.

Last but not the least, new build infrastructure ought to use the best technology for preventing gas leakage. Methane has 84-86 times greater warming potency than carbon-di-oxide (CO2), when measured over a 20-year period.

Experience from the US shows that fugitive emissions can be reduced for little or no additional cost, especially for new builds. GAIL’s pilot study with the US-EPA demonstrated methane emissions reduction of 2.9 MMSCM, equivalent to 41,225 tonnes CO.

Aside from sound city planning elements such as underground and integrated multifunctional conduits for utility services (gas, power, telecom etc.) to minimise disruption and infrared monitoring for any leaks, we suggest courses of action looking into the future. We expect the biogas and electrolytic hydrogen portions of fuel gases to increase steadily. This is desirable for displacing fossil fuel and for reducing use of costly imported LNG. This can be achieved by enabling a policy and regulatory framework that allows intracity piped gas to be flexible in composition.

Biogas can have a significant CO2 cut and a certain fraction can be tolerated with adjustment of the burner. Similarly, hydrogen has lower calorific value but a higher flame temperature. Such flexible fuel policy will increase demand and utilisation. Consumer education and standards ought to accompany such a policy to ensure efficient use.

We believe that the gas-based economy ought to be fuelled by increased domestic production, enabled by pricing and taxation reform. The infrastructure build presents the country with a unique opportunity to lead the world in a sustainable architecture with minimal leakage, and with provisions for increasing use of clean technologies such as renewables and electrolytic green hydrogen produced from renewables.

Bhatiani is Director, Energy & Environment, Research Triangle Institute (India) and Rao is Executive Director, Research Triangle Energy Consortium

Published on June 29, 2021

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