The Indian power sector is under pressure to reduce its carbon emission as part of the global effort to fight the climate change. It must shift from dirty coal to natural gas for generation on a large scale if it is to meet the objective. However, domestic gas shortage is a major obstacle to achieving that. But this constraint would significantly ease if India could find a big reserve of shale gas.
It is heartening that the government is planning to explore and exploit country’s shale gas reserves. It has already started the process of formulating regulatory framework and might put up shale gas acreages for auction in a year’s time.
Coal accounts for over 50% of India’s primary energy consumption. The power sector, which accounts for about 40% of the country’s total emissions, is a major user of coal.
The domestic availability of gas has significantly improved after Reliance Industries started production from its D6 block in the Krishna-Godavari basin last April. However, it is not enough to induce the power sector to shift from coal to gas. The country is projected to face a domestic demand-supply gap of 25-30% over the long term if the power sector changes its fuel choice from coal to natural gas.
The only credible option for India to meet the projected domestic demand-supply gap of natural gas is imported LNG. However, LNG prices can be quite volatile because they follow movement in the global crude oil market. Since the power sector is still being regulated, affordability of imported LNG is an issue for the sector.
Besides, India needs to make commensurate investment to develop supporting infrastructure like LNG import terminals, regassification plants and gas storage facilities.
However, if India could find sizeable reserves of shale gas, domestic availability of natural gas would become comfortable enough for the power sector to abandon coal as a fuel for generation.
It is because domestic gas prices are not prone to volatility unlike imported LNG. Improvement in domestic gas availability will further help moderate gas prices for the sector.
