The Cabinet Committee on Economic Affairs has last month approved ‘Natural Gas Marketing Reforms’, taking another significant step to move towards a gas-based economy.
What is Natural Gas?
- Natural gas is a fossil fuel source consisting primarily of methane. It is the cleanest fossil fuels among the available fossil fuels.
- It is used as a feedstock in the manufacture of fertilizers, plastics and other commercially important organic chemicals as well as used as a fuel for electricity generation, heating purpose in industrial and commercial units.
- Natural gas is also used for cooking in domestic households and a transportation fuel for vehicles.
Natural gas scenario in India
The share of domestic gas and imported RLNG was about 48% & 52% respectively. The City Gas Distribution (CGD) accounts for the largest consumption of natural gas followed by fertilizers, power and other industrial sectors.
(1) Domestic Gas Sources
- The domestic gas in the country is being supplied from the oil & gas fields located at western and southeastern areas viz. Hazira basin, Mumbai offshore & KG basin as well as North East Region (Assam & Tripura).
(2) Import of Liquefied Natural Gas (LNG)
- In order to meet the gas demand, LNG is imported through the Open General License (OGL) in the country. At present, India is having six operational LNG regasification terminals at Dahej, Kochi, Mundra, Ennore etc.
- Gas Pipeline infrastructure is an economical and safe mode of transporting natural gas by connecting gas sources to gas-consuming markets.
- An interconnected National Gas Grid has been envisaged to ensure the adequate availability and equitable distribution of natural gas in all parts of the country.
Why go for Natural Gas?
- Energy Efficient: Natural gas produces more energy than any of the fossil fuels in terms of calorific value.
- Cleaner fuel: Natural gas is a superior fuel as compared with coal and other liquid fuels being an environment-friendly, safer and cheaper fuel.
- Economy of use: Natural Gas (as CNG) is much cheaper compared with petrol or Diesel.
- Emission commitments: India made a commitment to COP-21 Paris Convention in December 2015 that by 2030, it would reduce carbon emission by 33%-35% of 2005 levels.
- Diverse applications: Natural gas can be used as domestic kitchen fuel, fuel for the transport sector as well as a fuel for fertilizer industries and commercial units.
- Supply-chain convenience: Natural Gas is supplied through pipelines just like we get water from the tap. There is no need to store cylinders in the kitchen and thus save space.
- Pacing up the progress line: On the global front, switching to natural gas is bringing commendable results. The latest report released by IEA shows that the electricity produced by natural gas worldwide was more than that of coal for the first time ever.
Various govt. initiatives
India’s quest to increase the share of natural gas in the overall energy mix hinges crucially on two factors: (1) Development of pipelines and (2) Hassle free exploration. In this regard, the govt. has taken several measures.
- The Hydrocarbon Exploration and Licensing Policy (HELP) is a policy indicating the new contractual and fiscal model for the award of hydrocarbon acreages towards exploration and production (E&P).
- The govt. has envisaged developing and expanding the National Gas Grid. At present about 16,788 Km natural gas pipeline is operational and about 14,239 Km gas pipelines are being developed.
- The Pradhan Mantri Urja Ganga (PMUG) pipeline project currently under will provide connectivity to another flagship project, the North-East Gas Grid.
- The Pradhan Mantri Ujjwala Yojana, which aims to provide free cooking gas connections to poor families is also a roaring success.
- Moreover, India is constantly moving to revive the 1,814 kilometre-long Turkmenistan-Afghanistan-Pakistan-India (TAPI) transnational gas pipeline which is in shamble for years.
What are the Natural Gas Marketing Reforms?
- Gas-based economy implies gas as the main commercial energy source in the energy mix of an economy.
- The reforms aim to provide a standard procedure for the sale of natural gas in a transparent and competitive manner to discover market price by issuing guidelines for sale by the contractor through e-bidding.
- This will bring uniformity in the bidding process across the various contractual regimes and policies to avoid ambiguity and contribute towards ease of doing business.
Components of the policy
- The objective of the policy is to prescribe standard procedure to discover market price of gas to be sold in the market by gas producers, through a transparent and competitive process.
- It would permit affiliates to participate in bidding process for sale of gas and allow marketing freedom to certain Field Development Plans (FDPs) where Production Sharing Contracts already provide pricing freedom.
Objectives of these reforms
These reforms will build on a series of transformative reforms rolled out by the Government in last several years. These reforms in gas sector will further deepen and spur the economic activities in the following areas:
- The whole eco-system of policies relating to production, infrastructure and marketing of natural gas has been made more transparent with a focus on ease of doing business.
- These reforms will prove very significant for Atmanirbhar Bharat by encouraging investments in the domestic production of natural gas and reducing import dependence.
- These reforms will prove to be another milestone in moving towards a gas-based economy by encouraging investments.
- The increased gas production-consumption will help in the improvement of the environment.
- These reforms will also help in creating employment opportunities in the gas-consuming sectors including MSMEs.
- The domestic production will further help in increasing investment in the downstream industries such as City Gas Distribution and related industries.
Making it happen
- The government brought a series of reforms in the Gas sector and as a result investment of more than Rs. 70,000 crore is being made on the East coast very recently.
- Gas production from the East coast will contribute to Atmanirbhar Bharat by meeting the increasing energy needs of the country.
- The domestic gas production has complete marketing and pricing freedom. All discoveries and field development plans approved after 28 Feb 2019 have a complete market and pricing freedom.
Better done than said …… Overcoming challenges
- Lack of infrastructure: India has enough storage capacity of the current state of domestic consumption of natural gas. However, to fill the entire energy bucket, we need to increase energy storage.
- Import dependence: Energy consumption in India is growing at 4.2 per cent per annum, which is the fastest among major economies of the world. Presently 52% of our domestic consumption relies on imported LNG. Moreover, the global disruptions in the import supply-chain can wreak havoc as the general hikes in Diesel prices do.
- Safety concerns: The global oil and gas market remains vulnerable to a wide range of risk factors, including natural disasters, major technical accidents, and geopolitical tensions among others.
- Domestic issues and delays: Petroleum including gas falls under the Union List. Pipeline laying has faced land acquisition challenges due to local farmers’ protest and unviable routes causing major project delays.
- Underutilization: GAIL is getting hit over the scarcity of domestic natural gas leading to underutilization of its 11,500 km of the pipeline network. Its network is operating at an average of 47% capacity.
- Less-feasible power alternative: Within the power sector, natural gas has received little traction primarily because the per-unit cost of electricity generated by a gas-fired power plant in India is higher than that from fossil fuels such as coal.
- Ecological concerns: Offshore drilling operations can possibly affect fish, lead to a build-up of heavy water contaminants, disorient whales and sea life that rely on sonar for navigation and exacerbate the risk of oil spills.
- Energy Trilemma: In order to build a strong basis for prosperity and competitiveness, India must balance the three core dimensions of the energy trilemma: affordability and access, energy security and environmental sustainability.
- A shift to a gas-based economy has to ensure both availability and affordability. Availability may be ensured by increasing production or import, developing the requisite delivery infrastructure — terminals, stations and pipelines.
- The current gas market is dominated by countries such as the US, Qatar and Russia. India must make use of these multiple gas production centres and ensure a balanced geographical portfolio of imports to ensure a robust and secure natural gas strategy as it does for Oil.
- India will have to embark on a balanced approach to develop indigenous gas resources, maybe through technology-intensive deeper drilling techniques and large scale import tie-ups.
- It is evident that clean energy transitions are underway – and it’s also a signal that we have the opportunity to meaningfully move the needle on emissions through more ambitious policies and investments.
- But the proof of the pudding is in the eating, as governments do play an important role in the growth of the energy sector in any country. Given the fact that the market in India is still nascent, there is always this concern of how effective these measures can be.
- With domestic production of gas stagnating and consumption growing at a CAGR of 4.5 per cent, there’s still a long way to go for transforming the economy to a gas-based one.