15% Share Of Gas In Energy Mix By 2035. Achievable?

Last year, as part of the government's plans to move towards clean energy sources, petroleum and natural gas minister Dharmendra Pradhan set a target of natural gas contributing 15 per cent to India's energy mix, against the current 6.5 per cent.

The push towards a gas-based economy, however, comes with major challenges with industry leader voicing for some major reforms. The government has clearly positioned coal and renewable energy as the major source of future power and natural gas has not even been given a mention, according to an expert.

There were times when setting up and justifying a 5000 crore plant for Gas sector was a challenge. However, the situation today is very different. This comes at a time when India's natural gas production has been stagnant. The estimated demand for natural gas over the next five years is expected to go up at a time when domestic production is low and gas import is facing infrastructure barriers already.

"In order to achieve this target of 15 per cent, the consumption needs to double up. But this circle is not happening. To begin with, we need an action plan for 2025. Slogans and targets alone are not enough! ", says Suresh Mathur, Former MD CEO Petronet LNG.

Mathur laid down some very serious concerns in this industry. To begin with, the demand and the affordability of the anchor segment or customers need a push. The government has authorised the construction of several cross-country pipelines covering over 5,000 km but the projects have not gone ahead because of lack of anchor customer demand which has caused viability and financing concerns. Gas demand is predicated on anchor customers who have traditionally been power plants.

The demand and consumption of natural gas have been on a decline due to fall in domestic gas production, relatively higher imported gas prices, and inadequate transmission and distribution infrastructure. Therefore, meeting the 15% target will require a significant push by the government through policies and incentives.

Apart from the affordability, the City gas distribution network movement is very important. But again, for CGD to be viable there needs to be a push to create demand. The existing cities where the city gas infrastructure is fairly well developed, CGD companies are struggling with the issues of insufficient mandates for; say the transport sector and too much time for securing clearances/permission.

Rahul Panandiker, Partner, Boston Consulting Group was quoted saying that the existing network of pipelines is operating at less than 40 per cent utilisation. There is a limited business case for laying down new transmission infrastructure until demand improves from the power sector or smaller demand sources for gas as an industrial or transport fuel become substantial enough to drive investment.

Since India's domestic gas production is limited, the imports would surge. To handle the increase in imports, CRISIL says India's re-gasification capacity will have to increase to 60 MMTPA (Million Metric Tonne Per Annum) compared with around 25 MMTPA now. CRISIL estimates the additional capacity will require Rs 300-350bn and another Rs 250-300bn for the 9,000 km of pipelines to distribute such enormous volumes of gas.

Mathur adds, "We are in a very healthy position for re-gasification, but we need to see the pipelines come into formation". Mathur cites the example of Gujarat, who has an exemplary share of natural gas in its energy basket equivalent to the world average of 45 per cent.

B.C Tripathy, CMD, Gail India, says Oil and Gas are very different businesses and the policies and targets need to be separately aligned. For the gas sector, one cannot invest unless there is an anchor customer or investor and the contract needs to be underwritten first unlike the oil sector where one invests first and later think of the logistics. There is a definite assurance.

"The gas sector needs a hand holding from the government. Power sector has assured returns but for gas, there is a lot of struggle. The ground reality is not understood by the government and the market is not developed".

"We have been talking about the northeast pipeline for the last 20 years now and it will not materialise unless hand holding support is given by the government to this sector. 15000 MW gas-based capacity has no infrastructure in India today", says Tripathi.

With the 15 per cent more of intent than a concrete statement, the government has moved ahead in certain measures and policies. However, Indian buyers need access to lower gas prices. The import duties, taxation and transport costs of natural gas and LNG must be rationalised. There is customs duty on gas but none of crude oil, as pointed by Tripathi.