Challenges for natural gas to become India’s bridge fuel
As India moves away from coal to a low-carbon and, eventually, a zero-carbon economy, can natural gas be a bridge fuel? Other than environmental benefits, does natural gas add values such as operational flexibility for the electricity grid, which would be more compatible with a high renewable energy (RE) future?
In a new working paper, Rahul Tongia examines the possibilities for natural gas in India’s energy mix, both through the lens of competitive economic viability as well as other impacts its use might have, notably, on carbon emissions.
The real challenge is the overall price-competitiveness of natural gas. While spot prices for gas were, until recently, low, they have risen after August 2020. Many analysts say future prices won’t drop as low as in 2020, which had a perfect storm of demand falls, favourable weather that muted demand spikes and Covid-19. The power sector, instead of finding a "sweet-spot" between alternatives spanning coal and RE, appears squeezed between cheaper vs. cleaner fuels. Its value for peaking remains high but the volumes required for this are modest.
Natural gas does have a role in niche or select segments, including industry, which can drive some growth in India. An important question remains: Is this displacing coal (like with industry) or other fossil fuels (liquids in transportation or LPG in cooking)? This will determine the carbon benefits over time.
For reasons ranging from economic to infrastructural issues that delay its use, it appears difficult for natural gas to grow either to the planned 15% of portfolio mix announced by the government or to a level where it accounts for a meaningful downward shift in India’s carbon emissions.
The paper recommends that policies for natural gas in India should not be determined in isolation but rather within a broader, holistic framework for energy. A few of the high-level needs for India’s energy policy are:
• Better signalling of prices and incentives
• Overcoming structural distortions
• Innovation and enabling changes, even if disruptive, both in technologies and business models
As these improve, the role for gas will only grow, but it appears, at best, to be a bridge fuel, and not the bridge fuel for India.
(The study has been authored by Rahul Tongia)