High time the Centre formulated a new integrated energy policy

High time the Centre formulated a new integrated energy policy

It is easy to give a long list of reasons to argue why India needs such a new national energy policy.

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Last Updated : 16 June 2024, 19:06 IST

It is difficult to believe that the last Integrated Energy Policy of India was formulated in 2006 by the then Planning Commission to plan till 2031.

NITI Aayog, which replaced the Planning Commission, released a draft National Energy Policy in 2017 for comments. Its time horizon was 2040. But till this year, the government has not finalised a national energy policy to reflect a totally different energy scenario from the IEP of 2006 and the draft NEP of 2017. 

The existential climate change crisis has forced every major country to revise its energy policies. The International Energy Agency (IEA), US Energy Information Administration (EIA), BP Energy Outlook, etc. keep updating their world energy reports to achieve ‘net zero’. 

It is rather strange and, in some ways, even sad that the ruling NDA government has not taken efforts to develop a robust energy policy for an economy that will be the third largest soon. While India has indeed developed sector policies for renewables, bio-energy, electric vehicles, green hydrogen, there is no integrated energy policy. 

It is easy to give a long list of reasons to argue why India needs such a new national energy policy. In this article, I want to elaborate on just one factor: expanding the use of natural gas to meet 15% of India’s total energy requirement by 2030. 

Ever since COP28, when there was an agreement to begin the end of the fossil fuels era, there has been a considerable urgency to end even the use of natural gas as soon as possible. This has resulted in some uncertainty regarding the pace and comprehensiveness of the transition to clean energy and the demand for LNG in the medium and long term. Even India, which has agreed to ‘net zero’ only by 2070, will also face uncertainties. 

The current global LNG trade volume stands at approximately 400 MTPA, with three major players: the United States (77), Australia (83) and Qatar (84). Each of these countries accounts for roughly 20% of the export market share. 

In 2022, India’s total import of LNG was 20.9 million tons. To achieve 15%, India needs to import 150 million tons of LNG in 2030. India has been trying to secure gas supplies from Iran (Iran-Pakistan-India pipeline) and Turkmenistan (Turkmenistan-Afghanistan- Pakistan-India pipeline) for several years but has yet to succeed. For the short and even medium term, the only way to meet increasing demand for gas is through LNG. 

India’s current LNG import capacity with seven terminals is just 47.7 MTPA. India’s gas production has been around 21 MTPA and the maximum it achieved was 35 MTPA in 2010. It is a pipedream to expect any significant increase in India’s gas production. 

As per BP’s Energy Outlook 2023, the world LNG capacity in 2030 is expected to increase to 575 MTPA. For India to achieve a 15% share by 2030, it needs to additionally import 130 MTPA, which is 75% of incremental world LNG production capacity. This is clearly not realistic.

According to the BP report, the US and Qatar are the two countries which contribute to meet the increase in LNG demand.

While Qatar has taken a strategic decision to expand its capacity to 142 MTPA (85% increase over the current capacity), the US paused its review of the application for exports of LNG to non-free trade countries. India is one such non-free trade country. Such a policy seems to be directed against China, but India will also face a problem unless it can get an exemption. 

After 2030, there is considerable uncertainty in world LNG demand, far more than in other fossil fuels such as oil and coal, according to BP Energy Outlook. This is mostly driven by how the energy transition scenario plays out.

BP Outlook has considered three scenarios: Accelerated, Net Zero and New Momentum. Under the first two scenarios, LNG import demand falls by 40%, whereas under the last scenario it increases by 30%. 

It is India and other emerging markets, which contribute to increasing LNG
import demand post 2030. This is only partially reduced by declining demand in developed countries. 

India’s planners will face a daunting task to develop a feasible way of defining the role for natural gas, both in the medium and long term.

As in the past, they have to consider three dimensions of the ‘trilemma’ affecting the energy system: security, affordability and sustainability.

India will have to give different weight to each of them and they will be different from that of the developed countries. While developed countries may give higher priority to sustainability to fight climate change, India may not have that luxury. 

India has launched a major programme to supply piped gas to residential consumers in urban areas to replace LPG - city gas distribution system. Already, more than one crore connections have been given. In comparison, there are about 31.5 crore LPG connections. 

While such a strategy of CGD sounds fine for countries with adequate gas supplies — either from their own production or imports from reliable sources — India has no such advantage.

To replace 50% LPG connections, the LNG requirement is about 14 MTPA (or 19 bcm of natural gas). 

This amount of LNG can be managed relatively easily provided energy companies have adequate capacity to import LNG from reliable sources like Qatar and the US, and if there is built-in flexibility to allocate when gas supplies are limited to give high priority to residential consumers.

It is useful to mention here the difficult situation faced by India’s gas-based plants when there was much expectation of plenty of gas supplies from Reliance discovery
in the 2000s.   

In anticipation of adequate gas supplies, a gas-fired power generating capacity was developed. However, when the expected gas supplies did not materialise, only a small percentage of the capacity was utilised
for several years (less than 50% capacity utilisation currently).

However, in the case of the residential gas sector, a lack of gas supplies can create havoc. It is high time India’s planners revisited the gas policy to develop a comprehensive study based on the ‘trilemma’ of security, affordability and sustainability at the earliest to avoid any unpleasant surprises. 

(The writer is a former global oil industry executive)


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