India's Push Towards a Gas-Based Economy

Mains Marks Booster     5th August 2023        
Samadhaan

Introduction 

Prime Minister Narendra Modi aims to increase India's share of natural gas in its energy mix from 6.2% to 15% by 2030, as part of the country's commitment to achieving net-zero carbon emissions by 2070 with a planned $60-billion investments in gas infrastructure by 2024. A gas-based economy implies making natural gas the primary commercial energy source in India's energy mix. 

Understanding Natural Gas

  • Natural gas is a fossil fuel primarily composed of methane and is considered the cleanest among fossil fuels.
  • It is used as a feedstock in the production of fertilizers, plastics, and other essential chemicals, as well as a fuel for electricity generation, heating purposes in industries, and transportation.

Importance of Natural Gas in India

  • Energy Efficiency: Natural gas provides more energy per unit compared to other fossil fuels.
  • Cleaner Fuel: It is an environment-friendly, safer, and more affordable fuel option compared to coal and liquid fuels.
  • Economic Benefits: Compressed Natural Gas (CNG) is cheaper than petrol or diesel, promoting cost savings for consumers.
  • Emission Commitments: India committed to reducing carbon emissions by 33%-35% of 2005 levels by 2030 under the COP-21 Paris Convention.
  • Diverse Applications: Natural gas can be used for domestic cooking, transportation, and as a fuel in fertilizer industries and commercial units.
  • Supply Chain Convenience: Natural gas is supplied through pipelines, eliminating the need for cylinder storage in households and saving space.
  • Global Progress: Switching to natural gas globally has shown positive results. According to the International Energy Agency (IEA), natural gas surpassed coal in electricity production for the first time.

Natural Gas Scenario in India

  • Domestic Gas Sources: India relies on domestic gas from oil and gas fields located in the western, southeastern, and northeastern regions viz. Hazira basin, Mumbai offshore & KG basin as well as North East Region (Assam & Tripura)
    • India has 26 sedimentary basins. However, only a small percentage of the sedimentary basin area has been explored, resulting in limited domestic production. 
  • LNG Imports: To meet the growing demand, India imports Liquefied Natural Gas (LNG) through the Open General License (OGL) regasification terminals located in various ports.
  • Gas Pipelines: The development of a National Gas Grid aims to ensure the availability and equitable distribution of natural gas across the country.
  • Pricing: India links local gas prices to global benchmarks to incentivize gas producers and boost local output.

Statistics of Natural Gas in India

  • Current Consumption: India's natural gas consumption is projected to grow by 8% annually, reaching around 34,949 million standard cubic meters in the current calendar year. City Gas Distribution (CGD) accounts for the largest consumption, followed by fertilizers, power, and other industrial sectors.
  • High Prices: Local gas prices and ceiling rates are at a record high, and global gas price surges due to geopolitical tensions may further increase prices.

Kirit Parikh Committee

  • Objective: The committee, led by energy expert Kirit Parikh, aims to ensure fair prices for consumers and establish a market-oriented, transparent, and reliable pricing regime to support India's gas-based economy.

RECOMMENDATIONS OF KIRIT PARIKH COMMITTEE ON GAS PRICING

  • Fixed Ceiling pricing for APM gas from old fields. 
  • Market determined Pricing System by 2027.
  • Linking gas price on a nomination basis to 10% of the cost of imported crude oil prices.
  • Ceiling rate to be increased by $0.5 per mmBtu annually.
  • Not tinkering with the existing pricing formula.
  • Natural gas in the GST regime by subsuming excise duty and varying rates of VAT. 
    • Setting up a mechanism similar to the compensation cess regime to address issue of loss of concern.
  • No Cut Category and city gas to get top priority in the allocation of APM gas. 
  • Removal of Caps on gas prices within three years.  

Challenges Facing India's Natural Gas Reserves

  • Lack of Infrastructure, Import Dependence, consumption relies on imported LNG, Safety Concerns: Domestic Issues and Delays, Underutilization, Less Feasible Power Alternative, Ecological Concerns:
  • Energy Trilemma: India must balance affordability and access, energy security, and environmental sustainability.

Natural Gas Marketing Reforms

  • Objective: The reforms aim to establish a standard procedure for discovering market prices through transparent and competitive processes. It permits affiliates to participate in bidding and grants marketing freedom to certain Field Development Plans.
  • Aim:  To provide standard procedure for sale of natural gas in a transparent and competitive manner to discover market price by issuing guidelines for sale by contractor through e-bidding.

Various Government initiatives

Government Initiatives

Description

Hydrocarbon Exploration and Licensing Policy (HELP)

  • Outlines a new contractual and fiscal model for the exploration and production (E&P) of hydrocarbon acreages, providing a clear framework for investment.

National Gas Grid Development

  • Aims to develop and expand the National Gas Grid. 
  • Currently, 16,788 km of natural gas pipelines are operational, and an additional 14,239 km of pipelines are under development.

Pradhan Mantri Urja Ganga Pipeline Project

  • A flagship project that will provide connectivity to the North-East Gas Grid, further enhancing gas availability in the region.

Pradhan Mantri Ujjwala Yojana

  • A scheme aimed at providing free cooking gas connections to poor families, improving access to clean energy.

Revival of TAPI Pipeline

  • Ongoing efforts to revive the Turkmenistan-Afghanistan-Pakistan-India (TAPI) transnational gas pipeline, which will enhance regional energy connectivity.

Reforms in the Gas Sector

  • Implementation of a series of reforms in the gas sector, attracting investments of over Rs. 70,000 crores on the East coast. 
  • This contributes to India's self-reliance by meeting the growing energy demands of the country.

Clean Mobility Solutions

  • Promotion of LNG (liquefied natural gas) as a cleaner transportation fuel, including for long-haul trucking. 
  • Plans to establish 1,000 LNG fuel stations across the country are underway.


Way Forward

  • Seizing Opportunities: India should take advantage of low gas prices and enter into contracts with gas-rich countries through pipelines.
  • Aggressive Reforms: More dynamic reforms are needed, including subsidy restructuring and improved production.
  • Empowering Producers and Buyers: Allowing greater control over pricing and marketing, and introducing e-bidding systems.
  • Focus on Electricity: Encouraging greater reliance on electricity as a cleaner alternative to natural gas and other fuels.
  • Government as Facilitator: The government should facilitate resource development, improve quality and quantity, and reduce import dependence.
  • Subsidy Reforms: Directly transferring fertilizer subsidies to farmers' accounts and granting marketing and pricing freedom to the fertilizer industry.
  • Extending Policies: The policy reforms should cover the entire gas sector, moving away from administrative pricing mechanisms.
  • Effective Implementation: Governments play a crucial role in driving energy sector growth, and India's gas market is still in its early stages. Ensuring effective implementation of policies is essential for the transition to a gas-based economy.

Conclusion 

India's ambition to transition to a gas-based economy presents significant challenges, including infrastructure limitations, import dependence, safety concerns, and underutilization. However, with aggressive reforms, empowering stakeholders, and a focus on clean and affordable energy solutions, India can progress towards its goal. 

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