India is emerging as a major demand centre for natural gas as a result of a sustained policy push by the government and increased investments to improve the infrastructure in the sector. In 2018-19, the country consumed 166.56 million metric standard cubic metres per day (mmscmd) of gas. Around 47 per cent of this consumption was met through liquefied natural gas (LNG) imports. Natural gas finds wide-ranging applications in various sectors including fertilisers, city gas distribution (CGD), power and petrochemicals. However, owing to declining domestic gas availability, sectors such as power (gas-based power plants) and fertilisers are facing huge operational issues.
Indian Infrastructure looks at the natural gas demand trends across the key consuming segments…
Fertilisers
The fertiliser sector is the largest consumer of natural gas in the country. The sector’s gas consumption stood at 41.22 mmscmd in 2018-19. Domestic gas accounted for 18.01 mmscmd or 43.7 per cent of total consumption. Major factors that have driven gas demand in the sector include conversion of naphtha-based fertiliser units to natural gas and the revival of urea plants.
CGD
The CGD segment has witnessed remarkable progress in the past few years. Proactive efforts by the government to expand gas demand across the domestic, commercial and transport segments have contributed to the growth in volumes. Gas consumption by the CGD segment increased from 23.39 mmscmd in 2017-18 to 25.26 mmscmd in 2018-19, an increase of 8 per cent.
Reforms such as priority allocation of domestic gas for the compressed natural gas (CNG) and piped natural gas (PNG) segments along with increased investments by the government to expand coverage are driving gas demand in the CGD segment. The ninth and tenth CGD bidding rounds are expected to see an investment Rs 1.2 trillion over a decade and will expand CNG and PNG coverage to about 70 per cent of the country’s population. CNG is expected to play a key role in India’s automobile sector with the government’s plans to set up 10,000 CNG stations and increase the number of CNG-run vehicles to over 20 million by 2030.
The ban on polluting fuels such as furnace oil and pet coke in various states such as Haryana, Rajasthan and Uttar Pradesh is expected to further push gas demand. The industrial segment is also expected to see an increase in PNG demand/connections. Growing environmental awareness and gas availability will lead to an extension of bans on polluting fuels across sectors and regions.
Power
Natural gas has gained limited traction from the power sector due to availability and affordability challenges. The decline in domestic gas production along with top priority allocation to the CGD segment has resulted in shortage of gas for power plants. Further, imported LNG is less competitive as compared to other sources of power such as coal and renewables. In 2018-19, the power sector consumed around 32.7 mmscmd of natural gas. The share of the domestic gas in the sector’s total gas consumption decreased from 78 per cent in 2017-18 to 74.38 per cent in the previous financial year.
NTPC Limited, the country’s largest power producer, received only 4.65 mmscmd of gas in 2018-19 against the requirement of 16 mmscmd at 85 per cent plant load factor (PLF). The company’s power plants operated at a PLF of 23 per cent during the year. Domestic gas supply to NTPC decreased from 11 mmscmd in 2010-11 to 3.66 mmscmd in 2018-19.
It is, however, important to increase the supply of gas to power plants. Gas-based power plants can play the important role of grid balancing due to the limitation of renewable sources in supporting peak energy demand in the evenings. The government should introduce reforms and take the necessary steps to revive gas demand from the power sector. More gas should be allocated to the sector as domestic gas production improves with the expected increase in supplies from the Krishna-Godavari basin. Further, it is important to bring natural gas under the ambit of goods and services tax (GST). While GST of 5 per cent is applicable on coal, gas has not been covered under the tax. Bringing natural gas under GST will help in making the fuel more competitive and viable for the power sector.
Conclusion
In the past few years, active efforts have been taken to increase the country’s natural gas consumption. Improvements in domestic supply along with investments in gas infrastructure, including cross-country pipelines and LNG import terminals, are expected to drive demand for the fuel. While the fertliser and CGD sectors have witnessed healthy volumes, reforms need to be undertaken to increase consumption in the power sector.
With inputs from Prasanna Kumar, Chief General Manager, NTPC Limited