The International Energy Agency (IEA) has forecast that natural gas will play an increasingly important role in meeting global energy consumption in the years to 2035 because of its easy availability and also due to its effectiveness in fighting global warming. Natural gas is an attractive option for countries like India where energy consumption is growing fast, according to the IEA. However, the big question is if India is prepared to switch over to the clean fuel on a large scale.

?Gas is a particularly attractive fuel for regions such as China, India and the Middle East,? the IEA says in its report ?World Energy Outlook 2011? released recently.

Unlike crude oil, reserves of natural gas are widely dispersed. The recoverable reserves are also enough to take care of long-term energy requirements. As per IEA’s estimate, recoverable reserves could sustain current level of natural gas production for 250 years.

The share of natural gas in the country?s energy basket is languishing at 10-11% while coal accounts for over 50% of primary energy consumption. India continues to depend heavily on coal to meet its energy requirement because of the easy domestic availability, while efforts to step up consumption of natural gas are constrained by factors like domestic shortage and lack of a long-term strategy on LNG import.

Encouraged by major gas discoveries in the Krishna-Godavari basin in the past decade by players like RIL, ONGC and Gujarat State Petroleum Corporation, power generators showed interest in setting up plants based on gas. However, RIL has failed to step up output from its D6 block, which is estimated to have a peak production potential of 80 million standard cubic meters per day (mmscmd) while other projects are yet to start production pending completion of field development work.

Despite these big gas discoveries, the gap in domestic demand and supply is projected to widen over the long term. India can bridge the gap with imported LNG. However, LNG being costlier, affordability remains a major hurdle to undertaking LNG imports on a large scale to bridge the domestic demand and supply gap.

Pooled pricing is an option for the government to encourage large-scale import of LNG. However, it looks unlikely that the government will implement the pooled pricing policy given that Ashok Chawla-led committee has rejected the idea.

India is exploring the possibility of importing natural gas from countries like Iran and Turkmenistan through pipelines. While piped gas is likely to be cheaper than LNG, risks of supply disruption are higher in importing natural gas via transnational pipelines.

In any case, India has not made much progress in negotiating deals for importing natural gas through pipelines. While some progress has been reported in negotiations over the Turkmenistan-Afghanistan-Pakistan-India gas pipeline, similar projects envisaged to transport gas from Iran and Myanmar remain just pipe dreams.

Currently, coal is the most preferred source in the global energy basket but it is likely to lose its pre-dominant position to natural gas by 2030. The share of natural gas in the global energy basket could go up to 25% from the current 21% level, according to the IEA report.

The government?s plan to increase the share of natural gas in the country?s energy basket may not go far enough unless the power sector moves away from coal, which remains its preferred fuel.

While gas-based power plants can fully recover their fuel cost as per the guidelines laid down by the Central Electricity Regulatory Commission, market competition with cheaper coal-fired electricity remains tough.

Demand for gas-fired power plants dips when enough electricity is available from hydro and coal-fired power plants. Electricity generated by gas-fired stations continues to remain the last option for state electricity boards, which are financially in bad shape.

Gas will continue to remain at disadvantage vis-a-vis coal so long the latter’s environmental impact is not factored in in electricity pricing. The government should offer incentives to gas-based electricity generation similar to wind and solar power projects if it wants to promote usage of the fuel. Otherwise, its plan to increase usage of natural gas will come a cropper.