Strict emission standards, an enabling regulatory framework, and a high price on carbon are some of the key ways India can boost its natural gas sector, according to the International Gas Union, a non-profit organisation comprising natural gas majors from around the world.
“There is a role for the government in allowing the right regulatory regime to allow the construction of the pipelines that allow gas to be transported from where it is produced to where the markets are,” David Carroll, President of the International Gas Union (IGU) told The Hindu in an interview. “In addition, the regulation must also allow third-party access in the way one does with power lines or telecom lines to ensure that buyers, sellers and transporters can ensure that the product can move freely without undue barriers.”
The more than 140 members of IGU are associations and corporations of the gas industry representing over 95 per cent of the global gas market, and they work together to help countries like India move towards a higher share of natural gas in their energy mix.
“Another important area to work on is emission standards,” Menelaos Ydreos, Executive Director of Public Affairs at IGU added during the interview. “Be stricter on those so you have to innovate to meet those standards. If coal can innovate to meet them, then more power to them. To the extent that gas can innovate, more power to gas. But that way you are not picking a winner or loser. You are letting the market respond to the requirements. However, the most efficient instrument is to put a price on carbon.”
Coal Conundrum
India’s reliance on coal as a source of energy is normal for a developing economy, Mr Carroll said, but the need to balance economic growth with environmental concerns means that there are significant opportunities in the gas sector.
“Like much of the developing world, you have a reliance on coal,” Mr Carroll said. “Even well developed economies still have coal as a sizeable part of their portfolios, but it has diminished over time. These economies, it’s all they did, burn coal and wood. But it’s an evolution, societies tend to decarbonise as they progress.”
“But if you couple that challenge with tremendous economic growth, population growth, urbanisation and it creates challenges but also opportunities,” he added. “And it certainly creates an environment where a 6.5 per cent to 15 per cent jump is not only achievable but also desirable due to the economic benefits that gas can provide and also the environmental benefits.
Mr Carroll was referring to the Indian government’s commitment to increase the share of gas in the energy mix from the current 6.5 per cent to 15 per cent. The global average share of gas in the energy mix is 24 per cent.
“Domestic production used to meet domestic demand,” Mr Ydreos explained. “While demand has steadily increased, domestic production of gas has declined. And that’s why now India has become an importer of LNG. I think it was largely a mentality of ‘we have a growing economy, we have domestic resources such as coal, and so we’ll use those as we grow our economy’. The difficulty with that is that to continue like that is counter to some of the climate change aspirations and environmental issues in India. It is a historic reason why coal has been preferred, but now it is time that history is left behind.”
However, despite gas’s low share in India’s energy mix compared with developed countries, this aspect is comparable with the energy situation in other developing countries, especially China.
“China is in the same range as India is right now, with a target to reach 10 per cent gas by 2020 and 12 per cent by 2030,” Mr Carroll said. “They are making some quick conversions in cities like Beijing where they are using gas for power production and for transportation because of the severe pollution challenges there. Indonesia and Malaysia have a much higher market share of gas. Brazil is very strong in bio-fuels. Russia is the second-largest gas consumer.”
“What people don’t understand is that of all the gas produced in Russia, 75 per cent is consumed domestically,” Mr Ydreos explained. “The rest is exported. However, in oil, while 75 per cent is exported, only 25 per cent is used domestically.”
Renewable Push
The Indian government has strongly committed to its targets of reducing emissions by 33 per cent by 2030, as set out during the COP21 summit in Paris, and towards this it has initiated a strong push towards a gas-based economy and has also invested heavily in renewable energy. The business opportunities this presents has not been lost on the international business community, according to Mr Carroll. However, he also warned against investing too heavily in renewable energy at a time when the technology is not yet ready.
“You have to bring renewables at the right time so you aren’t trying to bring them to market before they are actually ready,” Mr Carroll said. “In which case you are left with inefficient and costly subsidies for technologies that may be irrelevant in the near future.”
“India has a tremendous potential for solar energy,” he added. “We all realise that we have to stop burning dead dinosaurs to get our fuel. But certain renewables are still going through their cost curves and learning curves to get the required amount of output and to jump into it too big too soon leads to inefficient subsidies.”
Foreign Investment
“My take is that there is tremendous interest in the opportunities for natural gas in India,” Mr Carroll said. “There are opportunities wherever we are seeing a growing population and the vast movement of people into urban environments, and raising standards of living, and the ensuing huge increase in energy consumption. But with that you need to keep in mind the environmental challenges, so natural gas is definitely one of the fuels there, and so are renewables.”
However, despite the sector-specific regulatory hurdles the government can remove, the key to encouraging foreign investment is stability, according to Mr Ydreos.
“Nothing encourages investment more than a regulatory environment that is predictable and is stable and ensures that there is an appropriate risk-reward for the investor,” Mr Ydreos said. “If you want to attract large investment into India, that’s a precondition. That’s what the investment community needs to see.”
Cost Accounting
Overall, while coal is cheaper than gas to produce, it works out to be significantly more expensive when externalities like health costs and environmental costs are worked into the equation.
“If you have two existing plants, a combined cycle gas plant and a coal plant, the coal plant on a marginal cost basis is cheaper,” Mr Ydreos said. “Once you include the externalities, though, such has healthcare costs and climate change impacts, then gas is the more affordable option. In new construction, gas fares better than coal. You can construct much faster, get approvals easier, and the initial capital is less than coal.”
However, even if India ramps up its production of natural gas, it will still need to import gas for the foreseeable future, Mr Carroll said, warning that this must not become an over-reliance on imports.
“You will need to import,” Mr Carroll said. “But I was listening to Prime Minister Modi speaking at the Petrotech conference and he was talking about the strategies for energy. He did talk about plans for enhanced development of India’s gas resources, both conventional, offshore, and potential for shale gas development. There is some early stage development in shale gas, which I know is early, but if it takes off could be a rapidly developing source.”
“At the same time, there is development on your import capabilities both in terms of on-land terminals and floating terminals,” he added. “But clearly work needs to be done on the domestic production side to keep pace, so that you don’t become overly reliant on imports.”
Private investment in the domestic natural gas market is set to increase in the future due to the pegging of the price of natural gas to the international market, Mr Ydreos said.
“The biggest disincentive for domestic production was price,” he said. “That was what kept it suppressed. Now that we have a new pricing scheme in India, now you will see domestic production pick up.”
