There are reasons galore for why gas is now the most sought after fuel by Indian consumers. The oil and gas explorers get disappointed though, if gas is struck and not crude oil. From consumers standpoint, gas is environmentally benign, cheaper per unit of heating value than oil, and renders more efficiency of combustion than oil does. For producers, however, gas is difficult to transport, not possible to store in quantities like oil can be, and is not traded like crude oil. This is leading to disconnected markets with non-uniform prices.
A few years ago we said energy is needed to grow economy in India. The situation has worsened. Now it is realised that, more specifically, domestic energy is needed to save economy. On one hand, trade imbalance driven dollar deficit has devalued the rupee to an intolerable level. On the other, crude oil prices have remained higher despite global economies not doing so well. The double effect has led to crude oil imports becoming a serious burden on central exchequer as well as consumers. India needs to replace imported oil sources with domestic oil production to meet the liquid fuel addictsthe transport sector and the industrial sector. Unfortunately, even in the next 10 years or so, the possibility of achieving up to 20% import substitution by domestic oil seems remote.
Natural gas can also be a good substitute for oil in almost all applications if the consumers change over to gas by modifying or replacing assets. Adequate domestic gas, however, ought to be discovered and commercialised to meet the desired needs. The known oil and gas exploration activity lacks potential to deliver gas to displace even 20% of oil imports in the next 10 years.
The other conventional primary fuel, coal, is already bearing about 50% of burden of Indian energy demand. With the growing energy demand, coal may have to stretch to keep up that contribution given the current mining policies and plans. India cannot, therefore, afford to rely on coal. The need to cut reliance on coal also stems from carbon emission abetment originating out of commitments India has made in global climate fora.
India has progressed well on renewable energy development, and the commitment by corporates to invest in the sector will alter the scenario substantially. The target of renewable sources acquiring about 5% of commercially traded primary energywhich is inching fast towards 600 MTOEdoes not appear significant from the context of crude oil substitution.
In summary, the vulnerability of Indias economy to overdrawn foreign exchange seems to be so high that few percentage points contribution by domestic crude oil, domestic gas, coal and renewables does not seem to be helping us in the 10-odd years to come. Notwithstanding, crude oil imports cannot continue unabated. We may be better off by importing coal or natural gas in the interim, while concurrently pursuing demand-side management aggressively to increase efficiency of consumption.
Therefore, a choice needs to be made by finding better of the not-so-preferred alternatives. For the reasons cited above, using gas although imported appears to be the better alternative. With growing availability of gas in global markets, importing it as LNG will help tide over energy deficit, and help replace economically, environmentally and financially costly crude oil.
The case is strengthened by one more very important aspect. Dislike of producers towards gas is importantly owing to woes of transportation and associated infrastructure. If pipeline networks are not in place, they are discouraged to acquire gas prospective basins, to put in risk capital to develop gas finds and to commercialise discovered fields. Encouraging import of gas in the form of LNG will help gas markets develop in the country and the market will move towards maturity. Infrastructure for transportation will come up and gas-based projects like chemicals, fertilisers and power generators will be set up. Gas-fired automobiles will grow in numbers. Domestic and commercial establishments needs like cooking, heating and cooling will change over to gas. Manufacturers of appliances for gas usage will set up shops to meet market demand. The regulatory frameworks will also develop, transparency in regulations will grow and investors confidence in the gas infrastructure market will also grow. All this is not possible if we wait for a commodity to be produced domestically and let infrastructure follow. Global gas markets which grew at a fast pace have demonstrated that pipeline careers need to lead commodityeither on the back of government investment support through national gas companies, or by making private and international investors developing a positive outlook towards the market.
Those in exploration and production industry believe that India has a better chance of discovering gas on the east coast, on the west coast, in the north-east and on land in specific areas. If all this is to come true, the development of gas market will bode so well for domestic gas to be eventually brought to market that it will be as if the import of LNG was planned to help development of market for domestic gas!
Lets also test the hypothesis that LNG will discourage domestic gas development of domestic E&P industry. We have had three regasification terminals built in the history of Indias energy industry. Two of them have passed the test of successful continuous commercial operation. Even if three more terminals were to come up in the next 10 years, we would add approximately 100 to 120 mmscmd gas supply. After that, in the next six to seven years, i.e. by 2030, if three more terminals come up, with additional, say, 100 to 120 mmscmd, the total gas supply through LNG will reach about 200 to 240 mmscmd. In the Integrated Energy Policy 2006 published by the government, in Scenario 5 which encourages gas consumption, about 200 MTOE (about 600 mmscmd) gas is projected to be consumed. In 2006, IRADe and we at PwC too projected in PetroFeds Fuelling Indias GrowthVision 2030 a demand of gas in 2030 of about 400 BCM (1,200 mmscmd). Such total gas demand, as projected by the government and by us, if serviced by gas would satisfy only 11-20% of Indias total primary energy demand then. In these two projected demands, the LNG supply through six new terminals stated as possibility will service only between one-third or one-sixth of the total gas demand. That leaves about 400 to 1,000 mmscmd gas to be supplied from domestic production. These volumes are 5-12 times the initial indicated production capacity of KG-D6 of 80 mmscmd. Which means by 2030 we have a room for 5-12 such gigantic fields to be commercialised, even if LNG continues to be imported. Our industry is now familiar as to how challenging is it to develop even one of that types.
Lets give thumbs up to development of LNG import industry to save Indian economy and to help develop gas markets to usher in robust domestic gas production in the years and decades to come.
The author is leader, oil & gas, PwC India. Views are personal