Viewpoint: India pushes gas as economic elixir

The Indian government is shifting its focus to natural gas and LNG as an environmentally friendly alternative to crude oil and a tool to promote government spending and private investment. But sustained use of the fuel by price-sensitive Indian households will depend on costs.

The government is expecting investments of $66bn to develop gas infrastructure, including pipelines, city gas distribution and LNG regasification terminals, oil minister Dharmendra Pradhan said earlier this month, without revealing timelines or other details. Delhi is adopting a three-pronged approach to build a gas business — encouraging LNG import terminals and deepwater exploration, building a national gas grid to transport the fuel and aggressively awarding licences for city gas networks.

India's prime minister Narendra Modi is seeking to raise the share of gas in the country's energy mix to 25pc by 2030, quadruple the current level of a little over 6pc and nearly twice the previous 15pc target. India slipped into a recession for the first time in its history after its gross domestic product shrank by 7.5pc during July-September because of lockdown measures implemented to combat the spread of Covid-19. India has edged past more than 10mn Covid-19 cases, making it the second most-infected nation globally after the US. But the country's economy was already slowing ahead of the pandemic.

Delhi plans to lean on its state-owned oil companies to create gas infrastructure and boost the economy, after private-sector companies slowed investment across sectors. State-controlled Gail is adding around 15,000km of gas pipelines in eastern India to the existing network of 16,800km in northern and western regions to form a national gas grid. The company will soon launch its 11th round of city gas licensing after awarding 50 such licences to 12 firms in the last bidding round in early 2019. India plans to increase the number of compressed natural gas (CNG) retail outlets to 10,000 in five years from around 2,300 now, with city gas demand expected to double to 60mn m³/d by 2030.

The Indian government has also delegated regulatory approval to the India Gas Exchange as an alternative to state-set gas prices. Delhi may additionally give up its role in setting prices for unconventional and deepwater discoveries while retaining its power to fix prices for conventional supplies. Such measures are likely to encourage greater competitiveness in the gas sector.

Political goals

Modi is betting that building a national gas grid and city gas network by 2023, when the next federal elections are due to be held, will bolster the incumbent BJP party's chances of winning. A similar strategy paid off in 2019 when Modi won re-election after touting the doubling of LPG access to rural households via a subsidised scheme, and greater access to electricity, as key achievements of his tenure.

Modi may complete building the necessary infrastructure but it is unclear how much of an impact it will have on gas use. Many of the 80mn rural households that have subsidised access to LPG have low refill rates of just 2-3 times a year. The pandemic has also forced many to switch back to cheap firewood for cooking. Such a scenario is likely to persist should households continue to switch to cheaper alternatives and gas rates rise. The latter is evidenced by the fact that many Indian gas generators cannot afford imported LNG delivered at above $5/mn Btu, leaving many gas-fired plants in disuse.

India may not even achieve its previous target of increasing the country's share of gas use in its energy mix to 15pc by the end of this decade. Demand for the fuel is rising at a slower rate, according to state-controlled Petronet LNG, with current growth rates only at around 53pc of levels required for the country to meet a 15pc gas use target. Gas demand by 2030 will reach only 326mn m³/d at the current 4-5pc growth rates, much lower than the 611mn m³/d of consumption needed to meet the 15pc goal.

India has LNG import projects that will add another 29mn t/yr by 2030, but only a little over half of the around 40mn t/yr is currently utilised, according to Petronet. Gas demand grew by 4pc to 5.63bn m³ in October, up from 5.4bn m³ a year earlier. LNG imports rose to 3.28bn m³ (2.54mn t) of equivalent pipeline gas in October, up from 2.83bn m³ a year earlier. Gross production of gas fell by 12pc to 2.28bn m³ in November from 2.6bn m³ a year earlier.

By S Dinakar