The gas-coal riddle

Former coal secretary Anil Kumar Jain's book makes a strong case for using coal until renewable energy becomes ubiquitous in India

Natural Gas in India: Challenges and Opportunities

Author: Anil Kumar Jain

Publisher: CRC Press

Pages: 176

Price: Rs 8,886

First off, Anil Kumar Jain is clear that the Kirit Parikh committee on gas prices should have set a time frame of less than five years to migrate to free prices. “I realise, with the current global market in energy prices on fire, there’s difficulty in estimating when normalcy will return but still it could have been shorter,” he said in a recent meeting with this reviewer.

Dr Jain should know. The author of Natural Gas in India: Challenges and Opportunities, has recently retired as secretary, Ministry of Coal. He has examined the total future energy demand in India, and correspondingly, how the different fuels should be priced in the economy.

Of course the book predates the Russia-Ukraine war. So I had caught up with him to get his perspective on the Parikh committee report because it tied up so well with his book. Dr Jain agrees that when more countries are planning to subsidise gas usage (think Germany), it has become a challenge to talk of market-led pricing, especially because gas does not have clear international markers, unlike crude.

The book is a hard reminder that since India has enough trouble depending on imported oil, it should not bank on raising the share of imported gas too. With Europe snatching at every possible non-Russian source of gas, this is sane advice. Instead India should use coal as long as renewable energy does not penetrate all sectors while taking care to minimise the carbon footprint of coal.

The book is not a memoir that many IAS officers are prone to write after they retire. Instead it has grown out of Dr Jain’s doctoral study on natural gas pricing. He argues that India has long had a regime of cushioning the prices of energy to consumers. Since energy is an essential good, policymakers posited it as a public good with limited pricing freedom. But that became difficult for industry to absorb and yet remain profitable. That, he says, has crippled the price advantage of natural gas as a fuel of choice, to replace coal.

For example, in 2002, when the administered pricing mechanism was rolled back, with the expectation it would incentivise more exploration and production, the actual implementation still fell short of allowing full play for the market prices of oil and gas. Dr Jain speaks with an insiders’ perspective since he worked in the petroleum and natural gas ministry for close to a decade. Even subsequently in NITI Aayog, he developed the India Energy Model to guide energy policy questions for the next decade.

The book argues that the sectors where natural gas can now be competitive against other fuels is limited in India.

“There are four main sectors where gas could be consumed in India. My take is that if the country has alternative energy sources in any of these, then gas does not stand a chance. In the case of power, there is ready access to cheap coal. There is no reason why driven by the climate change considerations alone India will jettison a cheap source of power for a highly speculative source like gas. The share of natural gas-based power generation is not high in major energy consuming countries. For urea too, the demand is now entirely met by domestically produced gas … from the present trends, it appears that in these two major end uses of natural gas, the end price for consumers is likely to remain government controlled,” he writes.

He recommends that unless prices for urea, power, cooking or transport are freed of government controls, “producers in these sectors are reluctant to enter into firm natural gas purchase contracts as they do not have the ability to pass on the market price to consumers”. His book argues that India is yet to clearly formulate its agenda on energy pricing cutting across fuels. This is a deterrent for investments in fossil fuels except with large dollops of government support (read ONGC and Coal India). The demand for remunerative price for additional gas has to then depend entirely on city gas distribution networks and that of commercial transport, making them in turn quite unviable. “In a sum total perspective, even under the energy transition scenario, natural gas appears to be the fuel of choice limited to city gas distribution…”, he argues. 

The book works back from here to argue this will clip the development of ports to handle LNG imports. Since unlike oil, gas needs to be liquefied to be trans­por­ted across seas and then reheated at the ports (re-gasification) for transpor­tation inland, building any such terminal costs at least half a billion US dollars. These large capacities have become even more unviable due to the huge spike in the price of gas. Written before the war, it reads prescient now. “It remains difficult for anybody to spend that amount of money until at least the fixed costs get covered. This means at least half the capacity of those terminals have to be booked under long-term contracts.” The percentage of long-term contracts India has for gas imports is never more than 30 per cent, he points out.

Yet having brought the readers so far, Dr Jain hesitates to define the chances of natural gas hitting 15 per cent of India’s energy needs by 2030. Instead he throws broad hints as to why it will not happen. “India’s commitments to ramp up renewables to 50 per cent of its power generation capacity…does not help the cause of gas much. (Also) any pioneering effort in innovation towards the substitution of coal may be in the direction of non-fossil fuels and not natural gas alone”.