Adopting transition fuel (natural gas); moving towards greener economy

What's Buzzing 

Natural gas, being a greener fuel, plays a crucial role in reducing carbon emissions in comparison to other liquid fuels. India's dependence on natural gas is also expected to rise owing to the investments being made in the sector and recent amendments made at improving the overall gas infrastructure. 

Context 

Unlike other fossil fuels, in order to become a gas dependent economy, significant investment needs to be made in infrastructure (first mile, mid mile and last mile), to convert LNG, store, transmit gas over wider distances. However, once the investment has been made, it is expected to provide manifold benefits to the Indian economy such as lower costs, lower emissions, higher domestic output, etc. According to media sources, by 2026, India will invest Rs 3 lakh crore to expand its gas infrastructure - pipelines, LNG terminals, CGD networks and gas exploration projects. This would help with the government’s aim to raise the share of natural gas in its energy mix to 15% from the current 6.7%.

Our Perspective:

India's natural gas consumption is expected to increase from 175 mmscmd in FY22 to 297 mmscmd in 2030E, as per IEA. Of this, almost 44% of the country's needs are expected to be met by domestic production while the rest would be imported. Current LNG terminal capacity is at 42.7 MMTPA and an additional 31 MMTPA capacity is in progress. This is expected to nearly double the existing capacity and help take care of the rising gas demand. Refinery & petchem and CGD sector, which currently account for 34% of the country’s natural gas consumption, are expected to account for more than 60% by FY30E. Innovations in fertilisers (use of biofertilisers, nano urea, etc.) would improve their efficiency and divert natural gas to other sectors. On the gas pipeline front, currently 20,830 km of pipeline is operational or partially commissioned. Another 13,186 km of pipeline is under construction. CNG stations are expected to increase from 4531 stations in FY22 to 17,700 stations in FY30E. PNG connections are also expected to rise from 9.5 million to 120 million during the same period. The proposed new gas pricing mechanism by the Kirit Parikh committee is expected to benefit CGDs and likely bring down CNG and domestic PNG prices making them the preferred choice compared to other fuels. In the long run, upstream companies are anticipated to benefit from market linked pricing and ensure investments continue in E&P. Also, the recent amendments made to the pipeline tariff structure are likely to improve the overall gas infrastructure of the country and increase investments in the sector.