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India’s ‘blue flame revolution’ gathers pace
During the first term of Narendra Modi’s National Democratic Alliance (NDA) government, the prime minister and his petroleum and natural gas minister, Dharmendra Pradhan, spoke often of wanting to build a gas-based economy in India. Pradhan says he wants to see a “blue flame revolution transform India’s energy landscape”.
With the government now in its second term—following the NDA’s landslide victory in last May’s general election—gas remains a policy priority. The aim is to boost the share of natural gas in primary energy supply from 6.2pc to 15pc by 2030. Given that primary energy supply is forecast to grow by 4.2pc/year, according to Pradhan, the scale of this ambition is breathtaking. If Pradhan’s forecast proves correct, primary energy supply by 2030 will be 50pc greater than today. So, to meet the 15pc target, gas supply would need to grow almost fourfold.
To even get close to meeting this target, domestic production and gas imports would need to grow at unprecedented rates. With pipeline imports still a distant prospect and domestic production growth uncertain, LNG imports—which already account for 52pc of the nation’s gas supply—would need to rise steeply. Encouragingly, over the past five years they have been growing at 12pc/yr (see figure 1).
Challenges and ramifications
India faces “challenges of a magnitude and character unseen in any IEA member country”, according to a review of India’s energy policy published this month by the International Energy Agency (IEA). “The way these challenges are met will have major ramifications for other sectors, such as water, food, urban planning and transport.”
Narendra Modi is no stranger to controversy—perhaps never more so than today as widespread protests persist over recent changes to citizenship laws. But there were good reasons for the landslide victory of his Bharatiya Janata Party (BJP), which makes up the rump of the NDA, in last year’s elections. Among these were notable policy successes, especially in energy.
Since Modi came to power in 2014, his administration has brought electricity to hundreds of millions of people who previously lacked it. It is claimed that household electrification, while it can be intermittent, is now 99.9pc. A target of full electrification, without interruption, by 2022 now looks doable.
LPG coverage is up to 90pc, bringing significant health benefits as traditional biomass cooking fuels are displaced and freeing (mainly) women from the drudgery of collecting firewood. City gas distribution (CGD) is growing rapidly, though from a small base; today only 5mn households are connected to the gas grid, compared with the 80mn using LPG.
Chronic energy shortages that were constraining the nation’s economic growth have been ameliorated. According to the Ministry of Power, the nation’s energy deficit in fiscal year 2018 (ending in March 2018) was just 0.7pc, down from 4.2pc in the year to March 2014. This matters enormously because “India has set a target growth rate of 9pc/year, which would place it on a trajectory towards becoming a $5tn economy by 2024/25, making it the fastest-growing large economy in the world”, according to the IEA.
Renewables by 2022
A hugely ambitious renewables investment programme is on target to reach 175GW of installed capacity by 2022. “Installed solar generating capacity is targeted to reach 100GW by 2022,” says minister Pradhan. “We are well on our way to achieving this target. India has more than doubled the renewable power installed in the country to 82GW in 2019 during the last five years.”
Energy efficiency has been boosted through initiatives such as the widespread replacement of incandescent light bulbs with LEDs.“India’s achievements in the energy sector have been outstanding. The scale of these achievements is hard to overstate,” Birol, IEA
And, the prospects for upstream oil and gas production growth have been rejuvenated with major reforms, such as 2016’s Hydrocarbon Exploration and Licensing Policy (Help). These reforms have created a new licence for exploration and production of all forms of hydrocarbons, under an open-acreage licensing model, with a revenue-sharing rather than a cost-sharing recovery mechanism, and marketing and pricing freedom for the oil and gas produced.
“India’s achievements in the energy sector have been outstanding. The scale of these achievements is hard to overstate,” says the IEA’s executive director, Fatih Birol. But big challenges lie ahead.
Climate pledge pressure
Primary energy demand is forecast to double by 2040, as the economy continues to grow apace. To contain the nation’s heavy dependence on coal—which accounts for more than half of primary energy supply—and to enable it to meet the climate pledges it has made under the 2015 Paris Agreement, India is again ramping up its renewable energy ambitions. Modi announced at the United Nation’s Climate Summit, held in New York last September, that the electricity mix would eventually include 450GW of renewable capacity.
For that to be possible India will need a lot more natural gas in the electricity sector to manage renewables’ intermittency and to provide synchronous generation for grid stability.
India is also working hard to extend the reach of city gas to as many people as possible to improve the appalling air quality in many of its cities. The government has now held ten CGD bidding rounds, which together cover 53pc of India’s geographical area and 70pc of its population.12pc/yr Growth rate of LNG over the last five year
To provide the necessary transportation pipeline infrastructure, a huge investment programme is underway that will add another 15,000km of pipeline to the existing 16,800km long-distance network. The highest-profile such project is the Jagdishpur-Haldia & Bokaro-Dhamra Pipeline (JHDGPL) project, which is being executed by Gail at a cost of INR12,9400mn ($1.81bn), 40pc of which is being funded by a government grant. It will bring gas to five states in the east and north-east of the country: Uttar Pradesh, Bihar, Jharkhand, Odisha and West Bengal.
Moreover, India is unusual in that its largest gas-consuming sector is fertiliser production; that too will continue to grow as India struggles to feed its huge population of 1.3bn and rising. For gas to meet 15pc of primary energy by 2030, India will need to address the considerable challenge of procuring sufficient gas.
Much will need to be imported because domestic production has been disappointing and it remains to be seen how effective the Help reforms will be. After years of decline, domestic production has flattened out (see figure 2) but the signs are that production targets in the current fiscal year will be missed, with output lower than in 2018/19.
Also disappointing have been efforts to import gas by pipeline; India still has no international pipeline connection, though there are hopes that the Turkmenistan-Afghanistan-Pakistan-India (Tapi) will eventually be completed. Consequently, India passed a significant milestone in 2017/18, when, for the first time, imported LNG supplied more than half of the nation’s gas consumption, when excluding the gas used internally by producing companies.
Immediate challenge
Of the various recommendations that the IEA makes in its policy review, the immediate challenge for the government is to finalise a coherent and holistic national energy policy, building on a draft published in 2017 by NITI Aayog, the government think tank that in 2015 replaced the sclerotic Planning Commission. That, in turn, was the result of a promise made in the BJP’s manifesto in the run-up to the 2014 election.
The draft national energy policy is an ambitious document. There is emphasis on finalising reforms begun but never completed; competitive markets; third-party access to LNG regasification terminals; empowered and independent regulators; incentives for the creation of infrastructure; and appropriate pricing and subsidies.
It is set in the context of India’s climate pledges under the Paris Agreement. And, it recognises the role of natural gas in supporting strong renewables growth, given the intermittency of wind and solar power.
It is described by the IEA as “an excellent framework”. But—more than two years from the release of the draft in July 2017, and more than five years since it was promised in the BJP’s manifesto—it remains “under consultation”.
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