REGULATION | Staff Reporter, India

India to need $10b investments to hit gas target

It eyes boosting share of natural gas to 15% from 6.5%.

The government’s ambitious plan to more than double the share of natural gas in India’s energy mix -- from 6.5% in 2015 to 15% over the medium term -- would necessitate investments of at least ~Rs 65,000 crore (nearly $10b) just to augment infrastructure for gas import and for laying pipelines, according to the latest CRISIL Research.

Energy mix refers to the proportion of various fuels in overall energy consumption. The government’s move is in line with the commitment made at the Paris meeting on climate change (called the Conference of Parties 21, or COP 21), to reduce the carbon intensity of India’s GDP by a third from 0.37 kg (per PPP$ of GDP) in 2005.

Renewables are likely to be the key driver, with the government targeting 175 GW of renewable power by 2022. Gas, though a relatively cleaner fuel than coal and other liquid fuels, continues to be a higher cost option, which restricts its usage. Weak pricing power of end-users further limits usage in the power and urea sectors.

Here's more from CRISIL Research:

CRISIL Research believes that given the gas production constraints, low cost-competitiveness of liquefied natural gas (LNG), and under-developed infrastructure, meeting this ambitious target will be an onerous task, and will require significant push by the government through policies and incentives.

Additionally, gas consumption by the power sector needs to rise significantly if the energy mix goal is to be met. The share of gas-based power in total generation plunged to ~4% in fiscal 2016 compared with 12% in 2011, because of inadequate domestic supply and unviable LNG prices.

Says Prasad Koparkar, Senior Director, CRISIL Research: “Despite a subsidy-based revival scheme, plant load factors (PLFs) at gas-based power generation facilities are languishing at 20-25%. Even those that received subsidy could operate at only at half their target PLFs (50% in the first half of current fiscal).

That’s because spot prices of electricity have fallen below Rs 3 per unit, while gas-based power costs Rs 4.7 per unit after subsidy. Therefore, further policy
support, in line with the tax and duty exemptions provided to renewables, and mandatory scheduling of gas-based power, would be critical to boost gas usage in the power sector.”

Another key sector with significant potential is city gas distribution (CGD). Allocation of domestic gas leads to cost savings up to 30%, boosting its use in the transport sector. However, lack of curbs on furnace oil -- a cheaper but more polluting fuel – have resulted in industries continuing to use it.

To ramp up gas usage, LNG import and pipeline infrastructure needs to be expanded significantly. In particular, government financial support is necessary to revive stalled pipeline projects in east and south India, which have been dogged by viability worries stemming from subdued demand growth.

Says Rahul Prithiani, Director, CRISIL Research: “If the share of gas in India’s energy mix has to rise to say ~10% by 2020, it would mean a doubling of gas consumption to over 100 billion cubic meter (BCM) from current levels. But given that domestic gas production is limited, demand for imported LNG would surge three-fold to 65 BCM, or over 50 million tonne. Collaterally, to import this LNG, India’s regasification capacity will have to increase to 60 MMTPA compared with ~25 MMTPA now.”

CRISIL Research’s analysis shows that would entail investments of ~Rs 30,000-35,000 crore. And for all that gas to be consumed, ~9,000 km of pipelines would have to be laid in east and south India, which would cost another ~Rs 25,000-30,000 crore.


