Context

• The announcement at the end of August by the ministry of petroleum that they had constituted a committee, headed by energy expert Kirit Parikh, to review the domestic natural gas pricing regime.

Background

• Prime Minister Narendra Modi wants to raise the share of gas in India’s energy mix to 15% by 2030 from 6.2%, helping it progress towards meeting a 2070 net zero carbon-emission goal.

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.

Why Natural gas is Important?

• 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.

Natural gas scenario in India

• 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).
• 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 Pipelines :
• 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.
• Pricing:
• To incentivise gas producers and boost local output, since 2014 India has linked local gas prices to a formula tied to global benchmarks, including Henry Hub, Alberta gas, NBP and Russian gas.
• In 2016, the country began fixing the ceiling prices of gas produced from ultra-deep water and challenging fields and allowed marketing freedom to the operators of these fields.

Statistics of Natural gas in India

• Current consumption: India’s natural gas consumption is expected to grow by eight per cent year-on-year to around 34,949 million standard cubic meters (MSCM) in the current calendar year aided by expanding infrastructure, strong GDP growth projections, and supportive government policy.
• 2021 Consumption: In the 2021 calendar year (CY), the country’s natural gas demand stood at 32,360 MSCM. 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
• High prices: The state-set local gas prices and ceiling rates are at a record high and are expected to rise further due to a surge in global gas prices triggered by the Ukraine-Russia conflict.

Kirit Parikh Committee

• Objective: Ensuring fair prices to end consumers, and to suggest a market oriented, transparent and reliable pricing regime for India’s long term vision for ensuring a gas based economy.
• Members: The committee,headed by energy expert Kirit Parikh, will include members from the fertiliser ministry, as well as gas producers and buyers.Four of the six members are from the public sector.

What are the problems facing India’s natural gas reserves?

• Harsh topography: IHS CERA has estimated India has undiscovered gas resources of approximately 64 TCF The bulk of this is, however, in harsh topography and complex geology. These reserves are difficult to locate.
• Distant from the market:Even if located,they are difficult to bring to market on economically viable terms. This is because the cost of creating the development and production infrastructure is massive.
• Heavy Budget: The reality is India is a high-risk exploration play. There are inherent geologic, technical, and economic obstacles to achieving commercial success.
• Administered Pricing: Constraint of administered pricing petroleum companies have reduced their exploration budgets under pressure to shift away from fossil fuels.

What can be done?

• Pricing freedom: It should clear up the existing complexity and, other than for producers of gas from nomination blocks, permit all producers of gas to determine prices through arms length,direct and transparent negotiations with different consumer segments.
• Subsidies: There are no liquefaction facilities for the export of LNG in India. Subsidies may have to be provided but if so,they should be given directly by the government,through the exchequer. The gas producers must not be asked to bear that brunt.

Conclusion

• In the wake of the Ukraine crisis, the international energy market has undergone a profound transformation.India has made impressive progress towards clean energy. It has,however, a long way to go before it can fully wean itself off fossil fuels.

Mains Question

Q. 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 in natural gas regime. Comment

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