Gas sector needs $10b-capex to meet energy mix target: Report

The ambitious plan to more than double natural gas share in the national energy mix from 6.5 per cent in 2015 to 15 per cent over the medium term will need investments of at least Rs 65,000 crore just for augmenting infrastructure for gas import and for laying pipelines, according to a report.
An analysis shows ramping up gas import facilities and regassification facilities will entail investments of around Rs 35,000 crore, while it will need to lay an additional 9,000 km of pipelines in the East and the South regions for last mile delivery, entailing another Rs 25,000-30,000 crore investment, said the report by rating agency Crisil.

Explaining the rationale, Rahul Prithiani, Director at Crisil, said if the share of gas in the energy mix has to rise to say 10 per cent by 2020, it would mean a doubling of gas consumption to over 100 billion cubic meter from current levels. But given that domestic gas production is limited, demand for imported LNG would surge three-fold to 65 BCM, or over 50 million tonne.
"Collaterally, to import this LNG, the regasification capacity will have to increase to 60 MMTPA mmtpa from the present 25 mmtpa now," Prithiani said.
This would entail investments of Rs 30,000-35,000 crore for regassification terminals and another Rs 25,000- 30,000 crore for laying around 9,000km of pipelines, he added.

The Government move to lower coal dependency is in line with the commitment it made at the last Paris climate change meet (Conference of Parties 21), which aimed at reducing the carbon intensity of GDP by a third from 0.37 kg (per PPP$ of GDP) in 2005.

Energy mix refers to the proportion of various fuels in the overall energy consumption of a nation.
According to Crisil, renewables are likely to be the key driver of this green energy drive, with the government targeting 175 GW of renewable power by 2022.
Gas, though a relatively cleaner fuel than coal and other liquids, continues to be a higher-cost option, which restricts its usage and one of the main reasons for this is the weak pricing power of end-users which further limits usage in the power and urea sectors.

Given the gas production constraints, low cost- competitiveness of LNG, and under-developed infra, meeting this ambitious target will be an onerous task, and will require significant push by the government through policies and incentives, said the report.
According to Crisil Senior Director Prasad Koparkar,
"despite a subsidy-based revival scheme, plant load factors at gas-based power facilities are languishing at 20-25 per cent. Even those that get subsidy could operate at only at half their targeted PLFs (50% in the first half of the current fiscal) because spot power prices have fallen below Rs 3/unit, while gas-based power costs Rs 4.7/unit after subsidy."

"Therefore, further policy support, in line with the tax and duty exemptions provided to renewables, and mandatory scheduling of gas-based power, will be critical to boost gas usage in the power sector," Koparkar said.
Another key sector with significant potential is city gas distribution, he said, adding allocation of domestic gas leads to cost savings up to 30 per cent, boosting its use in the transport sector. However, lack of curbs on furnace oil has resulted in industries continuing to use it.
To ramp up gas usage, LNG import and pipeline infrastructure needs to be expanded significantly. In particular, government financial support is necessary to revive stalled pipeline projects in the East and the South, which have been dogged by viability worries stemming from subdued demand growth, Koparkar said.