India aims to have 15% gas in energy mix by 2030

India’s target to raise the share of gas in its energy mix to 15% by 2030 from around 6.4% now seems improbable, as demand will continue to outstrip domestic supply while inadequate evacuation infrastructure could prevent large-scale imports that would be required to realise the lofty goal, analysts said.

Far from going up, India’s net production of natural gas fell in the last decade to 33,131 million standard cubic metre (mmscm) in FY22, compared with 39,753 mmscm in FY13. Net production denotes gas available for consumption. The gross domestic production of natural gas in FY22 was 34,024 mmscm, up from 28,672 mmscm in FY21. ONGC is the leading producer of gas in the country contributing around 61% of the country’s production in FY22.

As domestic production fell and demand continued to grow, India’s reliance on imports went up to 48.2% of consumption in FY22, compared with 30.7% in FY13. Coupled with rising prices, total cost of natural gas imports increased from $9.5 billion in 2019-20 to $7.9 billion in FY21 and $13.4 billion in FY22.  

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“While domestic natural gas demand is expected to grow at around 8-10% CAGR over FY2022-2027, domestically available natural gas, which meets around 50% of the total demand currently, is expected to grow at only around 7-9% in the same period. This is a key concern which will hinder the growth in natural gas’ share in the energy mix, as the end-user industries have to rely on expensive liquefied natural gas (LNG) imports to meet the demand,” saidHetal Gandhi, director, Crisil Research.

Sanjay Sah, Partner, Deloitte, said for gas to be contributing to about 15% of primary energy in 2030, consumption of gas needs to grow 3.5 times of the current volume.

“This seems improbable owing to both demand and supply side issues. On demand side, anchor segment such as power sector needs to be enabled for offtake of gas and infrastructure such as city gas distribution (CGD) needs to be expedited. As regards supply, disruption in global prices of gas, availability of alternate fuels has impacted willingness to switch to gas,” Shah said.

In a May 2022 report, Climate Action Tracker said, “With the planned increase in gas consumption, India will likely need to significantly increase gas imports, as domestic production has remained stagnant, and invest in capital-intensive gas infrastructure. This exposes India to risks such as a carbon lock-in, stranded assets, and energy insecurity.” It said India’s import reliance is not sustainable as it will create additional burden on the country’s balance of payment.

To reduce the risks, India needs to rapidly change its current, fossil-gas-based trajectory and transform its economy to rely more on renewable energy sources. This will not only ensure energy security and independence, but will also save India crucial foreign exchange as it reduces expenditures from natural gas imports, along with reduced risk of gas infrastructure to remain stranded, Climate Action Tracker suggested.

Sourcing gas is also a problem now. Country’s biggest gas importer GAIL is facing uncertainty over supply of one-fifth of its contracted natural gas from GazpormMarketing and Trading Singapore (GMTS).

GAIL had in 2012 signed a 20-year contract with Russia’s Gazprom to buy 2.5 million tonnes of LNG. Supply from GMTS started since 2018. GMTS, which had signed the contract on behalf of Gazprom, was moved to Gazprom Germania. In April, Gazprom gave up its ownership in Gazprom Germania.

GMTS started defaulting on supply to GAIL since late May and so far in the current calendar year, it has not supplied eight cargoes. For the full year, GMTS is supposed to supply 36 cargoes or 2.5 million tonnes to GAIL.

Though GAIL isexploring various ways including entering into short-term agreements and advancing some cargos from the US to make up for the shortfall. But thespotLNG is prohibitively costlier now compared with the domestic gas price.

Gandhi said, “while domestic gas is priced at $6.1 per MMBtu in August 2022, contracted LNG is priced at around $14 per MMBtu and spot LNG at $35 per MMBtu. Although LNG has historically been expensive vis-à-vis domestic gas, the realignment of global LNG trade structure post the Ukraine Crisis has led to skyrocketing LNG prices in the first half of 2022. While we expect the prices to correct in the second half, they will remain elevated as compared to historical levels next year as well, thus capping the growth of natural gas demand in the medium term, especially from the industrial segment.”

While India’s regassification capacity is further being increased to 61 million tonnes per annum (mmtpa), the slow progress of the key projects under the national gas grid to 34,500 km has been slow, resulting in poor evacuation opportunities for LNG regas terminals and impacting their utilisation rates which stood around 60% in FY22.

“While we expect progress in many such projects in the long-term, we believe utilization of the LNG terminals to remain in the 55-60% range in the medium-term, primarily impacted by the lack of pipeline infrastructure,” Gandhi said.

Shah said there is need to take measures such as long-term agreements to reduce volatility, enhance cross border trade to garner more volumes, greater thrust on CBG among other initiatives to enhance the mix.

Climate Action Tracker said India could scale up its efforts to build its renewable energy capacity, rather than relying on fossil gas. A shift to renewables comes with other benefits, beyond climate protection, such as job creation and energy independence for the country, it said.