Pipeline dreams of gas-based economy: Hurdles in govt’s $118-bn masterplan


Pipeline dreams of gas-based economy: Hurdles in govt’s $118-bn masterplan

Though the government is mulling options to create a gas hub, doing so demands higher volume and maturity in the domestic market

Natural gas accounts for just 6 per cent of India’s energy basket, but the government has an $118 billion “masterplan” to increase this share to about 15 per cent in five years. To achieve this, it has earmarked some $60 billion to create the infrastructure  pipelines, import terminals and city gas distribution (CGD) networks  by 2024 and another $58 billion on hydrocarbon exploration and production by 2023.

India is the world’s third biggest emitter of carbon dioxide in the world and this masterplan is pitched as a step towards a cleaner fuel, meeting the United Nations COP21 commitments on climate change to cut carbon emission. Based on an industry estimate, to achieve 15 per cent, India’s gas consumption should increase from around 150 million standard cubic meters per day (mmscmd) to 500 mmscmd.

The advantages of adopting this clean fuel is augmented by its viability. “This 15 per cent target is doable because gas is cheaper than its alternative by at least 40 per cent. Hence, it will reduce the country’s oil import bill,” said R S Sharma, former chairman and managing director of Oil and Natural Gas Corporation (ONGC).

India’s crude oil import bill is expected to be around Rs 8 trillion for the current financial year. Almost four years ago, the government had charted plans to cut crude oil imports by 10 per cent by 2022. Instead, its share increased from 78.3 per cent in 2014-15 to 84.8 per cent in the April-August period of 2019-20.

The hurdles, however, are fairly high: Domestic production is virtually static, the country has a high import dependency on LNG and lacks infrastructure.

Though the government is mulling options to create a gas hub, doing so demands higher volume and maturity in the domestic market. The Petroleum and Natural Gas Regulatory Board was to come up with a gas hub policy and the Indian Energy Exchange, the power trading platform, has already shown interest in running it.

A hub is a central pricing point for a natural gas network, but it requires pipeline networks and storage space to be in place, access to diverse gas sources including domestic, LNG and pipeline imports too. Last month, India signed a long-term $2.5 billion LNG deal with the United States in a move to diversify its gas sources.

“The country’s gas requirement is huge. So its natural gas plans should give priority to all forms of gas including imports via pipeline too, otherwise it will give an unnecessary weight to LNG,” said Subodh Kumar Jain, director of South Asia Gas Enterprises (SAGE), which is working on a planned under-sea gas pipeline between Iran and India.

The current strategies to increase the share of gas in the energy mix include enhancing domestic production, infrastructure development, increasing the reach of CGD networks and LNG regassification terminals.

“All our reforms are centered on gas  these include substantial imports of LNG. ONGC’s Vashishta and Vedanta’s Barmer, too, are going to contribute heavily in pushing India’s gas plans,” Petroleum minister Dharmendra Pradhan said last week.

The petroleum ministry is bullish on its gas production outlook. According to an internal estimate, domestic natural gas production is expected to more than double to 71.92 billion cubic meter (bcm) by 2021-22 from around 35 bcm now. Production from new fields of Reliance Industries and BP from KG basin in the Bay of Bengal is also expected to start from the second quarter of next year. Recently auctioned small fields and those assets under Open Acreage Licensing rounds may also start yielding benefits in the next four years.

But there are questions about these expectations. “For production to increase, hydrocarbon producers should be given more sops. For example, though a policy is in place to explore unconventional sources like shale in existing fields, there is no clarity on pricing. The present financial model does not permit us to explore shale oil and gas,” said a senior executive from a private sector major.

As far as the development of infrastructure is concerned, the government has enhanced plans to add 11,900 km to the existing 16,500 km of pipelines by offering viability gap funding to some key projects. Also, with much LNG to come, India’s regassification capacity is set to increase from 37.5 million tonne per annum (MTPA) to 74 MTPA in the next 10 years at an investment of around Rs 30,000 crore. In city gas distribution too, an investment of over Rs 1.5 trillion is expected after the ninth and 10th round of auctions to reach out to 70 per cent of the country’s population.

More than infrastructure, the availability of a strong consumer base  including industrial, power and city gas distribution  are required for a gas economy. To make this a reality, industry sources are of the opinion that demand from power sector should increase. At present, around 25,000 Mw of gas-based capacity is affected owing to the unavailability of gas, of which 14,305 Mw is completely stranded. This needs to be revived to increase gas consumption at a quick pace. The masterplan, therefore, remains a major work-in-progress.


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