India will have to introduce policy support across the value chain if it is to attract the investment needed to expand the use of gas in its energy mix, the Paris-based International Energy Agency (IEA) said in its India Energy Outlook 2021 published on February 9.  

“There are reasons to believe that the gas market can grow rapidly, provided that current policies promoting its use are effectively implemented,” it said. 

IEA said that international gas market conditions are propitious for India with ample supply at low prices which is now giving price‐sensitive Indian buyers incentives to contract new volumes. Efforts are also under way to enact market reforms that encourage gas trading, and to rationalise the taxes and tariffs applied to different end users across the states of India. 

India has plans to expand the use of gas in its energy mix, and the level of current ambition is high: the government is targeting a 15% share of gas in the energy mix by 2030, up from 6% today and 8% in 2010. 

However, significant challenges lie ahead. India’s gas market today is a complex patchwork of different pricing mechanisms, gas allocation schemes and types of gas, and there are some distressed gas‐fired assets in the power sector as well as some under-performing and under-used infrastructure. 

“This complexity represents one challenge. It will also not be easy to encourage growth in a market that is likely to be based, in large part, on imported gas, or to find ways of overcoming the persistent competitiveness gap at the end‐use level between gas and cheaper local energy sources such as coal and renewables,” IEA said. “Ultimately, concerted policy efforts, backed by robust implementation, are key to creating the incentives necessary for gas in India to grow.” 

The case for gas in transportation  

IEA said that the main sector where gas is clearly competitive is transport; CNG prices are around 40‐50% lower than petrol and diesel prices, which also have a high tax component. Natural gas is also well placed to compete in smaller‐scale industries that require consistent levels of adjustable process heat but must today switch to coal, biomass or furnace oil owing to supply problems.

Gas is well suited to the needs of lighter industrial sectors such as textiles, manufacturing, and food and beverages. “These tend to be located in or close to large population centres, where air quality becomes an increasingly important consideration; providing policy incentives for such clusters of MSMEs [medium and small-scale industries] to switch to gas‐burning equipment is therefore key to unlocking further growth.” 

However, in many other parts of the Indian economy – including some key industrial sectors – the case for gas on straight cost grounds is much less compelling, IEA said. With today’s regulatory framework, economics alone do not make the case for gas in India. 

Policy support 

Overcoming affordability challenges for natural gas requires a range of supportive policies. The Indian government, as well as some states, have put in place a number of policies promoting gas use, including a wide‐scale roll‐out of CNG and bio‐CNG, and the expansion of gas infrastructure including LNG terminals, long‐distance transmission pipelines and city gas distribution networks. 

These policy ambitions translate into rapid growth of gas demand over the next decade, IEA said. On average, gas is expected to grow 7%/year to 2030, more than double the rate of overall energy demand growth. The share of gas in India’s energy mix (both natural gas and biomethane) will likely rise from 6% to 12% by 2040, largely at the expense of coal and traditional solid biomass, it said.