Is it time for India to embrace Natural Gas?

Natural Gas produces 50 percent less greenhouse gases than coal and crude oil and can prove essential to achieving India's net-zero emissions goal. Here's a look at the viability of this clean fuel and roadblocks in the implementation plan

Updated: Oct 27, 2023 11:45:56 AM UTC
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The Indian Government is pressing ahead with the aim of net-zero emissions to address the rising concern of climate change in accordance with the United Nation's Sustainable Development Goals (SDGs). It has brought urgent attention to our over-reliance on non-renewable and high-carbon-emitting fuels like coal and oil. While we strive to transition entirely to renewable energy resources, we need a bridge to tide us over until clean and green energy demands can be met completely. Natural Gas provides that bridge, a clean fuel that produces 50 percent less greenhouse gases than coal and crude oil. An energy source that has been acknowledged as a priority sector by the Government of India.

Is that all there is to it? To be the bridge it has been long proclaimed to be? Natural Gas has the potential to become a vital part of the energy mix for India of the future. A future reliant on clean fuel.

Natural Gas is already an essential part of the energy mix in India, albeit still considered by many to be on the periphery, with it currently contributing 6.3 percent to the mix. However, things are about to change. As an ideal energy source, especially with its role in energy transition, the importance of natural Gas has grown manifold for a country like ours that relies heavily on coal.

The government has set a goal to increase the share of natural gas by twofold in its total energy mix by 2030, estimated to form at least 15 percent of the energy mix. Owing to existing geopolitical circumstances, the heavy dependence on imported oil may leave India in a vulnerable position. Instead, a mix of energy sources will help the Indian economy towards higher growth as the country's natural gas reserves are believed to be approx. 1.32 trillion cubic meters, even though this is only 0.7 percent of the global reserve.

As the 3rd largest energy consumer in the world, the country's consumption of natural gas stood at ~60,000 MMSCMD (million metric standard cubic meters per day) in the financial year of 2022-23. The consumption of natural gas in the City Gas Distribution (CGD) sector is also expected to grow from 25 MMSCMD in 2020-21 to 86 MMSCMD in 2029-30 at a very healthy CAGR of 13 percent. The growth looks promising and achievable as 88 percent of the geographical area has been authorised to develop the CGD network, which covers almost 98 percent of the total population.

As per the latest ICRA report, Compressed Natural Gas is expected to become the second most popular fuel for passenger vehicles by 2027, spurred by the recent gas price reductions, which have impacted the CNG prices immensely—as much as Rs8 per kilo—the trust of the people is likely to be further reinstated. Furthermore, the infrastructure for CNG will be further strengthened, with over 10,000 stations across the country in the coming years. With proper connectivity and support from the Government, the number of people opting for CNG is expected to grow by leaps and bounds.

Coupled with a similar reduction in domestic PNG prices, spurred by the Kirit Parikh Committee report and subsequent guidelines issued by GOI in April 2023 for domestic gas pricing and the introduction of unified tariff on PAN India basis by PNGRB, the outlook on the growth of Natural Gas in CGD sector has never looked better.

As of today, Indian CGDs have provided more than 1.1 crore domestic PNG connections, and in the next eight years, India is expected to exceed six crore PNG connections. Besides being cost-effective and eco-friendly, CGD systems ensure a 24x7 safe supply of PNG.

So, what is stopping natural gas from becoming a dominant player in the energy mix in the country? As much as we talk about its potential, challenges still exist that have created roadblocks to the golden era.

Even though the country has made strides towards becoming self-reliant, it is still dependent on imports to a large extent. Existing geopolitical situations at the global level impact the oil and gas supply to the country.

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The undercurrents, completely external, lead to fluctuations in natural gas prices, leading to murmurs of dissent among the consumers. Add to it the various alternate fuels that exist as an option, and you have a complex and heady mix to navigate. Among these, hydrogen has emerged as a potential player in the energy sector, with high hopes pinned on it to become the frontrunner in a future with green energy. However, the cost of production, compression of hydrogen gas, leakage and reactivity and its economic viability still put a question mark in the march towards commercial viability & its adoption. As India takes initiatives to transition from Oil to Green Hydrogen, the bridge that natural gas provides can play an unprecedented role.

A bigger challenge remains with the people, the consumers. While natural gas is more of a people's fuel, from daily autorickshaw and taxi rides to the cooking fuel in a kitchen, its acceptance is still marred by hesitations due to long-standing perceptions and prejudices. Natural Gas is one of the safest energy options with a supply chain that is secure and robust and has the least carbon footprint compared to other fossil fuels.

While listing the challenges, one cannot leave out the red tape and lack of infrastructure to manage the burgeoning demand for Natural Gas in the PNG and CNG sectors. Authorities are taking an active role in the promotion and supply of Natural Gas and have launched multiple schemes and policies, from subsidies to price regulations. However, the execution is still a problem area. The lack of space or land in a metropolitan city like Mumbai or Delhi also adds complexity and challenges.

One of the key areas for growth for companies in the sector has become diversifying to Liquified Natural Gas (LNG). LNG is considered an excellent source for short-term energy needs, as well as for energy transition. To achieve the transition target, Natural Gas consumption needs to increase from 165–170 MMSCMD to 640–700 MMSCMD by 2030. Given that local output may not go above 100 MMSCMD, it would need to be supported by importing LNG. This would, in turn, require building suitable regasification terminals. With new Term LNG contracts signed at a five-year high in 2021 and following the same trend in 2023, as evidenced recently when IOC inked an LNG contract with ADNOC, Asia is anticipated to see the highest growth rate in LNG consumption. Demand for LNG is growing concurrently with infrastructural expansion, and India is expected to become one of the benchmarks globally for LNG infrastructure.

Also Read: How can businesses help India achieve net-zero target?

The challenges exist. However, a silver line is on the horizon and an opportunity in these challenges. The Government's focus on the sector has renewed efforts to develop the infrastructure and regulatory framework to support it. The CGD companies have become at par with our international counterparts in technology and operations as they work towards providing the best options to consumers. A recent internal survey showcased our existing customers' faith in natural gas and the openness of the potential consumers in transitioning to CNG and PNG. It further strengthens my belief in the future of Natural Gas in the country. In addition, as India unveils new blocks for exploration, a future of self-reliance in Gas becomes more real. The bridge Natural Gas looks towards developing in the energy transition is a few blocks from completion. A bridge that is not only economical but is also green, clean, and safe.

The writer is a managing director at Mahanagar Gas Limited.

The thoughts and opinions shared here are of the author.

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