Finally, a shift to natural gas

Wednesday, December 30, 2009

Indian industry’s energy consumption pattern finally started shifting toward natural gas in 2009. This has led to a drastic reduction in consumption of liquid fuels like naphtha by sectors like power and fertiliser. Natural gas is a clean source of energy and is environment friendly. But the government’s efforts in the past to direct a shift in India’s energy usage pattern towards natural gas had been hobbled by the wide gap in the domestic demand-supply of the natural gas. The fact that international prices of natural gas were prohibitively high also did not help.

For example, the Union power ministry had envisaged a sizeable chunk of its capacity addition in the 10th Plan based on natural gas. However, most of these projects could not be commissioned in the absence of fuel linkage. The result was that coal continues to remain a fuel of choice for power generators and accounts for more than 50% of India’s primary energy consumption.

This trend has changed after Reliance Industries Ltd (RIL) started production from its D6 block in the KG basin in April. Fertiliser and power plants are switching to natural gas. This has helped fertiliser manufacturers to cut cost and increase production. That has in turn led to a reduction of Rs 4,000 crore in the government’s fertiliser subsidy burden. As per statistics available with the government, the fertiliser industry’s naphtha consumption declined by 64% this year.

Increased domestic availability of natural gas has led to a significant improvement in the power generation sector. Electricity generation from gas-based power plants was 30% higher during April-October this year. That led to a significant reduction in electricity shortage.

Meanwhile, the impact of KG basin gas on the country’s industrial production became clear, with the mining sector registering double-digit growth in the last two quarters. Significantly, KG basin gas started impacting Indian industry’s energy consumption even when the D6 block was producing much below the potential. Now that RIL has ramped up production from 40 million metric standard cubic metre per day (mmscmd) to 80 mmscmd, the pace of change is expected to gain momentum.