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Transforming Energy
India wants to set up a gas exchange to promote alternative energy and fast-track oil import reduction
Transforming Energy

Transforming Energy

Cutting down oil imports to around 67 per cent in the next five years, India plans to develop its own gas exchange to push consumption of alternative fuel - be it indigenous or imported - on the lines of America's Henry Hub or the United Kingdom's Balancing Point. To make up for the cuts in oil imports, the nation will have to make a concerted effort to transit to electricity and natural gas usage in all sectors.

Prime Minister Narendra Modi met heads of national and international oil and gas companies last week to attract investments to this end, armed with a presentation by the Niti Aayog - the nation's official think tank - on India's plans to move to alternative fuel. Though the Organisation of Petroleum Exporting Companies (OPEC) predicts that India's oil consumption is likely to peak to 10.1 million barrels daily by 2040 - as against today's four million barrels - New Delhi predicts a major peak as early as 2023/24, before the demand goes down.

Both OPEC and the International Energy Agency - IEA the oil buyers' group - aren't quite convinced that India can reduce oil imports. On the contrary, they predict a climb to over 90 per cent predicting that growth in freight movement, chemical manufacturing, aviation and industries will lead to a continued and enhanced demand for oil.

The Niti Aayog's presentation at the two-hour meeting covered the policy changes directed at reducing oil imports and reworked demand and supply scenario projections for 2030. Participants included the OPEC Secretary General, Mohammad Sanusi Barkindo, and the CEOs of BP Plc, Russia's Rosneft, Saudi Aramco, and Reliance Industries, among others. Despite the lack of interest in India's oil production at the beginning of the meeting, "the meeting concluded on a promising note... most players were interested in India's oil demand projection vis-a-vis the plans to rework the gas market," an official said. "This was reflected in the proposals for investments (to explore more for gas, refine more oil, and set up networks for gas distribution)," he added.

At present, the country has a huge demand for gas that is actually subdued in a dysfunctional gas based power segment...in fertilisers and even in City Gas Distribution projects. Almost 22 GWs of capacity is stagnant because of unavailability of cheap gas, officials explain.

Gas makes more sense in any case. Nitrogen and sulphur oxide emissions are next to nothing and so, to achieve the same calorific value, you need a far lower quantity than you would with oil.

India has already announced an alliance with Japan - the world's biggest guzzler of imported gas - to form a buyers' club for liquefied natural gas, allowing cargo swapping. Since the global gas market is currently in surplus, India, along with Japan, will be in a dominant position to negotiate future contracts.

The current system of gas purchasing, meanwhile, is not favourable for domestic gas manufacturers with caps on the rates for gas produced from difficult fields. The proposed gas exchange and other reforms will then create a scenario where domestic suppliers would be able to get better rates on an open access system. Fund allocations have already been made to add import capacity of 22 million metric tonnes per annum and add over 10,000 kms of pipeline to transport gas over the next five years.

In a previous meeting to attract investors, the government had acceded to an industry demand that the gas pricing and marketing mechanism be freed up. In June this year, the government liberalised its licensing policy allowing players to carve out oil and gas blocks.

At present, gas contributes about 6.7 per cent to the domestic energy basket but the introduction of grid infrastructure is likely to increase that share to 15 per cent. Globally, gas contribution in the energy basket is 24 per cent. In the last three years, India has been relatively successful in changing the composition of its energy basket by increasing the utilisation and deployment of solar and wind energy.

The second phase will see government procurement of electric cars. Even this early in the game, five major players in the automobile industry are working on the shift from internal combustion engines to electric modules. This is crucial because of the total consumption in India, 35.8 per cent of petrol and 28.4 per cent of diesel is used up in cars.

Indian Railways is also contributing its mite to the cause by electrifying 22,000 kms of tracks to reduce diesel consumption in next three years. This would account for 4 per cent of India's total diesel consumption. The Railway Ministry is also on track with Dedicated Freight Corridors designed to shift the bulk of freight movement from roads to railway tracks. At present, freight movement consumes 28.25 per cent of diesel while commercial passenger travel accounts for another 9.55 per cent.

Having missed the bus to cheaper gas at the turn of the century, this might well be India's only opportunity to bridge the gap.

@anileshmahajan

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