Relevance: GS-3: Indian Economy and issues relating to Planning, Mobilisation of Resources, Growth, Development and Employment

Key Phrases: International Gas Union, International Energy Agency, India plans to double the share of natural gas in India’s energy mix to 15% by 2030; working gas volume in storage.

What is the context behind this article?

• New Delhi recently announced vague plans to build strategic gas storage
• The decision comes in the backdrop of Russia-Ukraine war and subsequent embargo imposed on Russian petroleum products causing hike in prices.

Key Highlights of the article

• Stocking grain for a rainy day is an ancient Indian tradition.
  • But despite of such tradition India hasn’t been investing in creating storage infrastructure for Natural Gas as it has been doing for grains, for example.
• India embarked in 2015 on a challenging mission to more than double the share of natural gas, a relatively cleaner burning fuel, in India’s energy mix to 15% by 2030.
  • But despite investing in gas infrastructure,the government hasn't earmarked funds for underground storage along with pipelines, liquefied natural gas (LNG) import terminals, compressed natural gas (CNG) outlets and gas transmission networks.
• The International Energy Agency (IEA) describes Indian buyers as price sensitive, underlining the importance of cheap gas to the country’s demand for the fuel.
  • A surge in LNG rates late last year to over $25 per metric million British thermal units (MMBtu) sent LNG imports down by 9% in 2021.
  • That makes storage a critical component of India’s budding gas infrastructure in order to
    • Ride price volatility
    • Cushion consumers against supply disruptions.
• As per analysts, “Had Europe had more storage and had that storage been fuller, prices would not have surged so high during the Russia-Ukraine crisis.”
  • Europe uses storage to meet peak demand for the fuel in winter.

India at a disadvantage

• India is more precariously poised because it has recourse only to LNG, negligible overhead storage, and nil underground storage.
  • China, whose working gas capacity accounts for around 6.3% of demand, also gets fuel via pipelines from Russia and Central Asia in addition to LNG
• Germany, which is overly dependent on Russia for energy, has storage capacity equivalent to about one-quarter of annual consumption. It plans to introduce a law mandating minimum working gas inventories from May.
  • European stock levels are at only around 27% of annual consumption.
• The EU, which depends on Russia for 40% of its gas supplies, just announced plans to cut reliance on Russian gas by two-thirds by leaning on LNG.
  • Replacing 100 billion cubic metres of Russian gas by the end of this year is EU’s objective
  • That’s equivalent to 70 million tonnes of LNG or 18% of global LNG trade.
• To do this, the EU will need to outbid consumers in emerging markets (such as India and China), which could trigger energy crises there too,
• In 2021, nearly 70% of Europe’s supply of LNG originated in the United States, Qatar and Russia, according to data by CEDIGAZ, these countries that also supply India under term contracts.
• Analysts see crude climbing to $200 a barrel while Russia warns of $300 a barrel, inflating rates of crude-linked term LNG for India.
• LNG accounts for over 80% of India’s supplies with the rest sourced from the spot market.
  • Its prices may rise further if Europe starts competing with Asia for cargoes.
  • Such expensive spot supplies will be out of the reach of most Indian users, with factories suspending operations or burning dirty furnace oil.
    • Causing environmental and health risks
  • That risks leaving much of India’s gas infrastructure, such as LNG import terminals, already operating at 63%, and pipeline capacity underutilised in the absence of storage.

Way Forward

• India imports around half of its gas needs, and given the constraints in domestic production that dependence can only increase.
  • The higher the degree of external dependence, the greater the importance of gas storage.
• India has no underground gas storage nor has state-run Indian Strategic Petroleum Reserves been asked to evaluate options.
  • Overhead storage at LNG import terminals such as Petronet LNG’s Dahej facility is negligible relative to consumption.
• Natural gas is most commonly held underground under pressure in depleted oil and gas reservoirs, aquifers and salt caverns. LNG is stored in liquid form in overhead tanks, which are expensive and consume space.
  • Most natural gas storage in the US is in depleted fields, which takes advantage of existing wells, gathering systems and pipeline connections.
• Shifting to a Gas based economy will boost the country’s dependence on a cleaner fuel that would provide infrastructure, jobs and contribute to growth.
  • Missed opportunity
    • In 2015, crude averaged $45 a barrel, falling to as low as $9 a barrel in April 2020, keeping term LNG costs low.
    • Spot LNG rates plunged to less than $2 per MMBtu in May 2020 compared to over $50 per MMBtu now.
    • It was inexpensive to store gas in the 2015-20 period, provided we had created storage, but the government should have anticipated black swan events threatening India’s energy security.
• Learning from Best examples: China has played the gas game much better.
  • Demand this year is expected to average 407 billion cubic metres, over six times that of India.
  • It became the world’s biggest LNG importer last year at 79 million tonnes, thrice that of India, despite being a late entrant to LNG.
  • But Beijing embarked on building underground gas storage in parallel. The China National Petroleum Corporation (CNPC) has 11 gas storage facilities groups in service, accounting for 82% of China’s gas storage.
  • Working gas capacities at 19.3 billion cubic metres are equivalent to nearly a third of India’s annual gas use.
  • The working gas volume in storage has been growing at an average annual 22% in the past seven years.

Conclusion

• Given that we need the fuel to fire our growth en route to a $10-trillion economy, it’s critical for the government to step on the pedal.

Source: Business Standard

Mains Question:

Q. In the light of Russia-Ukraine crisis, explain the need and challenges of creating a storage infra for Natural Gas in India.