Global LNG supply is projected to be far in excess of demand in this decade and India should take advantage of this situation to tie up bulk supplies of imported natural gas under long-term contracts. Being a big consumer, India can easily bargain a competitive price. But the moot question is, is India prepared to capitalise on the emerging glut in the world LNG market?
Increase in LNG imports would necessitate commensurate capacity addition in infrastructure like pipeline, LNG re-gasification terminals, storage capacity and city gas distribution network as well. But with the downstream hydrocarbon regulator Petroleum and Natural Gas Regulatory Board (PNGRB) and the petroleum ministry fighting court battle over jurisdictional issues, adding infrastructure capacity at a required pace would be a serious challenge.
For example, the government set up PNGRB in 2006 to expedite capacity addition in the country’s pipeline and city gas distribution network. The regulator successfully conducted bidding in 2008 for granting authorisation for setting up city gas distribution projects in seven cities. Later, it held the second round of bidding in 2009 for granting authorisation for some more cities. But, meanwhile, jurisdictional issues sparked litigation between PNGRB and the petroleum ministry. The matter is subjudice in the Delhi high court. Pending that, PNGRB cannot grant authorisation for setting up city gas distribution projects in these cities.
The petroleum ministry has proposed setting up a parallel body, national gas highway development authority, to supervise implementation of cross-country pipelines in a bid to clip PNGRB’s powers.
The global LNG supply is projected to outpace demand in this decade because of unforeseen factors like a structural shift towards non-conventional gas in the consumption patterns of key energy-consuming countries such as the US and a significant increase in piped gas supply to Europe from Russia.
At the end of 2009, global LNG liquefaction capacity was estimated at 340 billion cubic metre per annum (bcma). Additional 60 bcma liquefaction capacity currently under construction is expected to be available over next three years. Besides, and other 130 bcma capacity is in various stages of planning, out of which 44 bcma should be commissioned.
“Even with a conservative estimate of capacity addition, the industry would face an overhang of 80-130 bcma between 2010 and 2015, equivalent to 20-35% of usable capacity in 2013,” says global consultancy firm Mckinsey in a recent report.
India has agreed to cut its carbon emissions by 20% by 2020 over the 2005 baseline on a voluntary basis. However, meeting this target would not be possible unless the power sector switches over to natural gas in a big way. Coal accounts for over 50% of India’s primary energy consumption. The power sector is the biggest consumer of coal and accounts for a major share in India’s carbon emissions.
Meanwhile, the Union power ministry has envisaged 100-gw capacity addition during the coming 12th Plan. The bulk of the capacity will be based on coal. While the ministry has envisaged raising the share of supercritical power equipment —which are relatively more energy efficient—reducing carbon emission could still prove a serious challenge given the increase projected in the power generation capacity.
India will have to add power generation capacity at a faster pace in coming years to meet the growing energy requirement of its economy. So, it cannot afford to slow the pace of capacity addition to meet the carbon emission reduction target. Weaning the power sector off dirty coal is the only way India can meet the emission reduction target without compromising its economic growth. But that would not be possible unless the country steps up its LNG import in a big way. Mckinsey has estimated that India’s natural gas demand will nearly double to 320 million standard cubic meters per day by 2015.
Coal continues to be the fuel of choice for power project developers because of its competitive cost economics vis-à-vis natural gas. Power plants using liquid fuels have shifted to natural gas in the wake of increased availability of the clean fuel from domestic sources.
However, additional availability of domestic natural gas is not enough to encourage a major shift in fuel choice for power generation capacity addition. India has no option but to go in for large-scale LNG imports if it is to guide its power sector toward a fundamental shift in fuel choice.
However, the power sector cannot discard dirty coal unless it is assured of long-term supply of LNG at a reasonable price. With the country gradually shifting toward competitive bidding for procurement of power from the current cost-plus system, any power generated would have to compete with coal-generated power for market in the end.
The government has recently imposed a cess on coal to generate revenues for the clean energy fund. The move is expected to go some way toward meeting India’s emission reduction target. However, this needs to be backed by a long-term strategy to assure adequate supply of natural gas to the power sector.
The Indo-US civil nuclear deal has paved the way for the government to expedite nuclear power generation capacity. Meanwhile, the government has also drawn up plans to add 20,000-mw grid-connected solar power capacity by 2022. However, these are base load electricity sources and cannot help in overcoming the country’s peak power shortages.
India’s peak power shortfall is growing by the year. The shortfall in 2009 was estimated at 17%. This is projected to increase to 25% by 2015. With the government struggling to expedite the pace of power generation capacity addition, the problem of peak power shortfall is likely to worsen in coming years. Peak power requirement can be met from hydro and gas-generated power only. While India has the potential to add 1,50,000 mw power from hydro resources, geological surprises and environmental issues pose a serious challenge to expediting capacity addition. Besides, big hydro power projects are also vulnerable to delays because of inter-state disputes over sharing of water resources.
Natural gas can prove useful in addressing problems in other sectors as well. For example, it can replace the usage of LPG in household fuel consumption, petrol and diesel in transportation and naphtha and fuel oil in fertiliser.
Natural gas is much cheaper than LPG and can be used as piped gas for households. Natural gas is increasingly replacing LPG in developed countries. Meanwhile, the use of natural gas as fuel for automobiles is increasing rapidly because it is 30-40% more efficient and much cleaner than petrol and diesel.
If India allows large-scale LNG imports to meet its emission target, it would open up big business opportunities for public sector companies like Indian Oil Corporation, GAIL India and ONGC
Source: Financial Express
Source: Financial Express
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