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Paper

India’s Natural Gas Future Amid Changing Global Energy Dynamics

Ankur Malyan, Poonam Nagar Koti, Nitin Maurya, Diptiranjan Mahapatra, and Vaibhav Chaturvedi
August 2021 | Low-Carbon Pathways

Suggested citation: Malyan, Ankur, Poonam Nagar Koti, Nitin Maurya, Diptiranjan Mahapatra, and Vaibhav Chaturvedi. 2021. India’s Natural Gas Future Amid Changing Global Energy Dynamics. New Delhi: Council on Energy, Environment and Water

Overview

This study discusses what it means to be a gas-based economy in the Indian context. It presents insights on gas penetration across sectors, requirements for gas infrastructure and investment, employment opportunities, implications on import bills, and emission reduction in each scenario.

The study highlights the implication of a changing global gas price dynamics on India’s ambition of being a gas-based economy using integrated assessment-based scenario analysis. It explores four scenarios for natural gas in India: (i) ‘High Gas Price’ (HGP) scenario that is also our Reference sc; (ii) ‘Low Gas Price’ (LGP) scenario; (iii) ‘Uniform Pooled Price’ (UPP) scenario (for testing an alternative gas allocation policy); and (iv) ‘Low-carbon 2-degree’ scenario, for reflecting a low carbon world. Figure 1 describes the scenario framework for the study.

Figure 1: Scenario framework followed in the study

Scenario Framework Followed in the Study

Source: Authors’ compilation

Key findings

  • With infrastructure development but high gas prices (reference scenario), the share of natural gas in the primary energy (PE) mix would only be reaching 6.5 per cent by 2030 and 12 per cent by 2050, hence, missing the target of 15 per cent in the PE mix by a significant margin.
  • In a low gas price scenario, natural gas could support up to one-fifth of the primary energy demand by 2050.
  • Share of natural gas in the transport and industry sector would get doubled in 2050 as compared to the reference scenario where a low gas price regime allows for the availability of and increased access to cheaper gas.
  • To tap the low gas price opportunity, there would be a need to expedite gas infrastructure development and would require 96 billion (2015 USD) investment by 2050.

Figure 2: In low gas scenario, by 2050, natural gas could support one-fifth of the total primary energy demand

In low gas scenario, by 2050, natural gas could support one-fifth of the total primary energy demand
Source: Authors' compilation
Note: RES refers to summation of energy provided by RE resources, namely solar, wind, hydro and geothermal
  • Though high gas penetration would have benefits in terms of new employment opportunities (1.4 lakhs) and import bill reduction (723 billion 2015 USD, undiscounted cost) by 2050, the gains in emission reduction are much lower (~3 per cent) than usually anticipated.
  • In a uniform price scenario, though the transport and building sector (subject to losing their priority status) would have to give up their small share of natural gas, market reforms are critical and have many potential benefits to the economy
  • In the decarbonisation scenario, the optimal share of natural gas in the Indian economy is 18 per cent by 2050, exceeding which could derail India’s ambition of being below the 2 °C pathway. Correspondingly, the ideal gas penetration in the industry, transport and building sectors would be 26 per cent in transport, 14 per cent in building and 22 per cent in the industry sector by 2050.
  • Even catering to the demand for gas corresponding to the optimal share would need a significant and expedited investment worth 62 billion 2015 USD in gas infrastructure. Being on a 2 °C in low gas price regime would also generate 90,000 new jobs across the gas value chain and offer ~50 per cent reduction in import bills.
  • Not being conscious of long-term decarbonisation objectives while promoting gas in the Indian economy could lead to stranded assets worth 34 billion 2015 USD.

Key recommendations

  • Target the optimal gas share of 18 per cent in PE mix by 2050. This would ensure that India can reap the benefits of low natural gas prices without locking itself down with potentially stranded assets and staying on a low carbon pathway.
  • Expedite the expansion of gas infrastructure (pipelines and LNG terminals) to cater to the expected multi-fold demand in long-term by promoting frequent biddings and capacity expansion plans.

In the decarbonisation scenario, the optimal share of natural gas in the Indian economy is 18 per cent by 2050 , exceeding which could derail India’s ambition of being below the 2 °C pathway.

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