India is currently the third largest energy consumer in the world. Of late, the volatility in oil and gas prices has impacted sector growth. However, the government’s focus on city gas distribution (CGD) infrastructure, changes in the gas pricing regime, adoption of alternative fuels and the increasing share of natural gas in the energy mix are expected to drive future growth. In an interview with Indian Infrastructure, Dr Anil Kumar Jain, chairman, Petroleum and Natural Gas Regulatory Board (PNGRB), talked about the development of the sector over the past two decades, its major achievements, and the future outlook. Excerpts…
How do you look at the oil and gas sector today and what have been some of its big achievements?
At present, nearly 223 million tonnes (mt) of petroleum products get consumed in India. Of this, nearly half is consumed by the transport sector. If aviation fuel is included, this share becomes even higher. The government has ensured that the rising demand for transport fuel is being met throughout the country at stable prices. Another important fuel is cooking fuel, that is, liquefied petroleum gas (LPG), for which the government launched a scheme to convert biomass as a cooking fuel into LPG. Besides transport, there is demand for oil and gas from the industrial and petrochemical sectors that is being well served.
In the mid-1990s, the government decided to encourage oil refineries to attain self-sufficiency with respect to petroleum products. Hence, it was decided that crude oil could be imported, because crude markets are much more diverse globally. Over the last 30 years, this ambition of self-sufficiency in petroleum products has largely been met, which is one of the biggest achievements of the government.
Around 20 years ago, the New Exploration Licensing Policy was launched, leading to gas discoveries on the eastern coast of the country. The private sector entered into oil and gas exploration around the same time. Slightly thereafter, in 2006-07, the shale gas revolution happened in the US, and the availability of gas increased worldwide. Prior to that, at one point of time, gas prices were higher than those of oil on an energy parity basis. Thereafter, they became cheaper on a per kilocalorie basis than the energy derived from oil. This was when the government strongly laid emphasis on CGD. It was also decided that public transport would transition to compressed natural gas (CNG), and the PNGRB was conceived. The regulatory body was set up at a time when the sector was not even mature, with the view that it would play the role of a developmental agency. The setting up of the PNGRB, its role in laying pipelines and the licensing of CGD projects are some of the key achievements in the gas sector.
With licences for geographical areas (GAs) being issued, what will be the focus areas for the PNGRB going forward?
India is nearing maturity in terms of laying of pipelines and grant of CGD licences. Nearly 94 per cent of the population is now covered under the CGD network. This achievement was possible only due to the backbone of the pipeline network and the PNGRB’s efforts. The remaining coverage in the hilly areas of Jammu & Kashmir and the Northeast is expected to be achieved by the end of 2023-24.
The PNGRB will now focus on pushing the adoption of gas in demand sectors such as building, industry and transport. Within transport, automobile manufacturers are transitioning to CNG vehicles, and liquefied natural gas (LNG) is on the PNGRB’s radar as a fuel for long-haul movement. Further, there is adequate LNG capacity to meet the gas demand for urea production. However, cooking is a challenge, as only around 10 per cent of the total gas supplied for the CGD sector is currently used for cooking. Hence, providing piped natural gas (PNG) connections in domestic households at affordable costs is the focus.
The adoption of CNG and PNG is essential not only because they are cheaper than liquid fuels, but also because they have environmental superiority. Going forward, the role of the state governments, municipal bodies, national green tribunals and the Ministry of Environment, Forest and Climate Change will be pivotal.
“The adoption of CNG and PNG is essential not only because they are cheaper than liquid fuels, but also because they have environmental superiority.”
What will happen once the exclusivity period for CGD players ends?
With the end of the exclusivity period, the cost of entry for a new player will decrease as it doesn’t have to incur capital expenditure. At present, the adoption rate of CNG vehicles is high. In due course, LNG will be used as fuel in trucks and buses. Industrial gas demand is also expected to increase in light of the growing climate crisis and global warming. It is expected that at the end of the exclusivity period, there will be a lot of vibrancy in the natural gas market.
What is your perspective on gas pipeline connectivity and pipeline utilisation in the country?
Gauging the utilisation of a gas pipeline is a moving pin. For instance, Hazira-Vijaipur-Jagdishpur is an old pipeline. However, with the assurance of gas along the Hazira-Vijaipur-Jagdishpur route, all kinds of demand centres came up. At present, Hazira-Vijaipur-Jagdishpur is 100 per cent utilised. The idea is that the creation of pipeline infrastructure has to precede demand. At present, the challenge is that the overall gas consumption in the country is not increasing due to various reasons. If a pipeline network is being created and the overall consumption stagnates, the utilisation will reduce. If gas consumption grows, pipeline utilisation will naturally grow.
Does the country have enough gas storage? What is the PNGRB’s role in this space?
Storage is a technical subject; unless there is gas stored on the mainland of the country, end users will not feel assured (especially in an industry where demand fluctuates based on seasonality). One type of storage is LNG terminals; however, this is expensive. Underground storage is also a solution. India has strategic oil reserves but lacks gas storage. Unlike strategic oil reserves, where a physical structure has to be created, gas can be stored in depleted reservoirs and pumped as per requirement. The Ministry of Petroleum and Natural Gas proposes to come up with a licensing policy for this. Lastly, pipelines are also a means of storage. The PNGRB is thus examining various means to assist the industry in gas storage.
What, in your opinion, is the role of green hydrogen?
Green hydrogen has two aspects – green and hydrogen. Hydrogen is present in abundance in nature. It is required by many industries such as fertilisers and refineries. It is important to analyse the preparedness of the four demand sectors (transport, agriculture, building and industry) to abandon their existing fuels and move to hydrogen. Once that is scrutinised, it is expected that there will be upfront investment in the hydrogen ecosystem.
So far, the hydrogen produced in the country has come from various hydrocarbon sources, making it grey hydrogen. In order to make it green, the electrolysis process, that is, the splitting of the water, needs to use electricity from green sources. It is essential to assess if the country has sufficient renewable power to apply to this process. As such, the issue of competing demand for green power will arise. At present, the country is committed to reducing the share of coal in electricity production. In order to achieve this, renewable power needs to go to the grid rather than be used for electrolysis. Also, for 24-hour power supply, green hydrogen needs to be stored, which will further increase costs. Thus, the adoption of green hydrogen is only expected to materialise in due course.
At present, hydrogen should be sourced from all possible sources. When electrolyser costs come down and electricity is sourced primarily from renewables, the country can migrate from grey hydrogen to green hydrogen. This is a prevalent practice in the West. If natural gas is needed to support the grey hydrogen agenda for the first 10 years in order to establish the ecosystem, then the PNGRB will ensure its availability.
“In the next 10 years, there will be more fuel choices with the development of the hydrogen ecosystem. The industry is expected to move to hydrogen blended with natural gas.”
What are the trends that you foresee will shape the oil and gas sector?
Demand reduction in liquid fuels has already started. Natural gas is more competitive than oil on a fuel parity basis. Even though India doesn’t have enough domestic gas availability, imported gas is cheaper than crude, as oil and gas prices move in tandem. In the next three to four years, gas prices are likely to fall, and the share of gas will grow to displace liquid fuels. In terms of alternative fuels, in the next 10 years, there will be more fuel choices with the development of the hydrogen ecosystem. The industry is expected to move to hydrogen blended with natural gas. Factors such as increased pipeline connectivity, development of CGD infrastructure and stabilisation of gas prices will also boost the growth of the oil and gas sector in the future.