Page 11 - AsiaElec Week 49 2022

AsiaElec GAS GENERATION AsiaElec

India’s embrace of

natural gas backfires

INDIA INDIA has embraced natural gas in the last the number of CNG vehicles sold in the country.”
few years as a means of safeguarding its energy Meanwhile, the market for CNG vehicles in
security at a low cost, even at the expense of India has taken a clear hit. According to a report
its substantive domestic coal reserves. In the published by Economic Times on September 30,
years prior to the aftermath of the coronavirus the Indian automobile industry has slashed the
(COVID-19), this was a rational choice just on estimate of the number of CNG vehicles that will
an economic basis. Global gas prices were so low be sold in the year ending March 2023 by 25-30%
that domestic coal was uncompetitive compared to 500,000-550,000. This is still higher than the
with international gas, and there was the added forecast for the 2022 financial year, though, of
bonus that the former offered lower emissions, 261,000 units.
helping India fulfil its climate objectives. Now The Indian manufacturing sector has also
the situation has changed. India is reverting to taken a big hit. The Financial Express ran a
coal-fired power and heating out of necessity. report in early November estimating that more
The price of international gas is simply too high. than 300 of the 800 units in India’s biggest
The Indian government raised the price of ceramic production hub, Morbi, in the state of
regulated wholesale gas by 40% at the start of Gujarat, had had to switch from gas to more
October. While most of this burden represented affordable propane. The gas demand to the hub
the higher price paid for LNG imports, the price was reduced to 2mn cubic metres per day, versus
to most domestic gas producers was raised to an average of 7 mcm per day last year.
$8.57 per mmBtu, for the six-month period Propane has become cheaper by INR15 per
from October 1, 2022, from $6.1 per mmBtu in unit compared with natural gas, Haresh Bopal-
the April 1-September 30 period of this year. The iya, president of Morbi Ceramic Association,
cost of gas from difficult-to-exploit reservoirs, told Financial Express. Over the past year and a
including those in deep waters or subject to high half, the price of pipeline gas has increased from
pressure or high temperature, was raised to $2.45 INR35 to INR63 per cubic metre, before recently
per mmBtu from $9.92. being cut by INR5.
The price hikes have had a clear impact on gas The Mobi ceramic cluster amounts to more
consumption. Demand in the April-September than three quarters of Indian ceramic produc-
period of this year came to 31.48bn cubic metres, tion, creating annual turnover of more than
down 4.7% year on year. INR450bn ($5.5bn), including INR120bn worth
The gas supply that falls under the adminis- of exports.
tered price mechanism (APM) is mostly deliv- The Indian fertiliser system has also got hit
ered as compressed natural gas (CNG) and hard. The government is expanding the subsidy
domestic pipe natural gas (PNG). They account bill by around INR400bn this fiscal year, bring-
for 50% and 10% of the city gas volume respec- ing the total to INR2.15 trillion. The price of
tively, according to a report by CRISIL in early domestic gas and imported LNG increased from
October. an average $22 per mmBtu as of June to around
“Demand for residential PNG, although more $25 per mmBtu in September this year.
resilient to higher prices, may also grow a mod- “Amid the Russia-Ukraine conflict, the price
est 2-5% as employees return to office with the of pooled gas has risen approximately 10% quar-
COVID-19 pandemic subsiding. CNG demand ter on quarter in September 2022. The earlier
is still expected to rise 25-30% on the back of an expectation was prices would soften gradually.
expanding network of CNG stations to new geo- Each dollar’s increase in the price of pooled
graphic areas and higher sales of factory-fitted gas raises the government’s subsidy burden by
CNG cars, despite narrowing price differential INR70bn on domestically produced urea, which
with competing petrol and diesel,” the director accounts for 85% of the production volume,”
of CRISIL Ratings commented. “City gas dis- CRISIL said. “The price of imported urea, which
tributors have been taking successive price hikes accounts for the balance 15% volume, remains
since April 2021 to manage their cost pressures. elevated at over about $650 per tonne, almost
For instance, CNG prices have been increased double the historical levels. Together, this could
by a massive 75%. The hike in the CNG price has mean overall subsidies rising to INR2.55 trillion
reduced the cost advantage that the fuel enjoyed this fiscal.”™
compared with gasoline and diesel, impacting

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