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A golden age of gas?

International Energy Agency (IEA) had predicted in its signature report World Energy Outlook (WEO) of 2011 that coming decades will usher in the Golden Age of Gas.

A golden age of gas?

IEA report discussed the possibility of gas meeting 25 per cent of world energy demand by 2035 and that gas demand will increase by 50 per cent. This should have been a wake-up call for India to develop a sound gas plan.

The factors which influenced IEA to predict the golden age of gas were: abundant gas reserves spread across all regions; gas is a versatile fuel used extensively for power generation and gas can compete in most end-use sectors.

Compared to other fossil fuels, gas produces the least amount of green house gases. Unfortunately India lost precious time to shape the right gas policy.

There is a ray of hope now. The NDA government plans some needed reforms. More oriented towards free market than the UPA, the NDA has announced plans to liberalise gas prices though with some control where needed. It is this qualification which may raise concerns in the mind of the investors.

When the Krishna-Godavari (KG) basin was increasing its gas production in 2009-10 and India’s production reached the peak of 51 BCM, it was thought India was also entering a golden age of gas. Since then it has been a downward ride for India’s gas sector.

Private and public sector companies invested in gas power plants mostly after 2002. They were expecting to get access to ‘cheap’ gas production when KG basin came on stream. Total capacity of gas power plants reached 24,000 MW. Unfortunately with the drop in gas production, either they became idle or were operating with low plant load factor of 30 per cent or less.

 

Why the power producers didn’t go for multi-fuel?

 

On hind sight it can be argued that these investors should have opted for multi-fuel use (coal, fuel oil or light crude oil apart from gas) or be prepared to run on more expensive LNG. This is the practice in some of the developed countries even if it involved incurring additional investment as an insurance against non-availability of gas. Indian power producers did not do this. As a consequence, large power capacity based on gas remained idle when gas output from the KG Basin declined and imported gas became expensive.


The band-aid solution

When LNG prices started to drop from an average of $16 per million BTU in 2014 to less than $7 per unit in 2015, mirroring the drop in crude oil price (see Graph-3) NDA government came up with a band-aid type solution. They offered subsidy to these stranded power plants to start the idled power plants using imported LNG. Even at lower LNG prices they could not have competed with coal based power plants and it was felt that there is a need to offer subsidy.

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