http://pesd.stanford.edu • Stanford University

Why Isn’t Natural Gas in India’s Climate Plan?

Mark ThurberAssociate Director, Program on Energy and Sustainable DevelopmentStanford University

Seventeenth Annual Conference on Indian Economic Policy ReformStanford University, June 2-3, 2016

India has very low CO2 emissions per capita, but largest projected growth in absolute emissions

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• India’s per capita CO2 emissions 30% of global average (~10% of U.S.)• Increase in emissions will be driven by coal-powered development

Source: IEA World Energy Outlook 2015

Coal use will grow more in India than anywhere else

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Source: IEA World Energy Outlook 2015

• Government goal of doubling domestic coal production by 2020

India’s Intended Nationally-Determined Contribution (INDC) relies heavily on solar

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Source: Sivaram and Shivnani 2015

Source: Sivaram, Shrimali, and Reicher 2015

India’s targeted solar ramp

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• Beware of charts that look like this!• 100 GW target for 2022 is ~1/2 of global installed capacity today• Does this plan “take the heat off” coal expansion plans?

Various energy sources are mentioned in INDC

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• Conspicuously absent: natural gas• Natural gas plants have ~1/2 CO2 emissions of coal plants (and

negligible emissions of SOx, NOx, particulates)

Source: India’s INDC, September 2015

Energy Source Details

Wind Largest renewable source in India: installed capacity –24 GW, 2022 target – 60 GW

Solar Grew over 100X from 2005 (2.4 MW) to 2015 (4 GW); plans for 25 solar parks; 2022 target – 100 GW

Biomass Currently 18% of primary energy, often very dirty; Current capacity – 4 GW, 2022 target – 10 GW

Hydropower Installed capacity – 46 GW, est. potential – 100 GW

Nuclear power Installed capacity – 6 GW, 2032 target – 63 GW

Coal Installed capacity – 167 GW; new plants required to use supercritical technology; coal beneficiation made mandatory; tighter efficiency and emissions standards mentioned in INDC (though few details)

Possible justifications for ignoring natural gas

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1) Domestic natural gas reserves are limited2) Imported natural gas risks supply disruption3) Imported natural gas is expensive4) Political economy and institutional problems around

gas allocation

Gas resources more limited than coal

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Despite 94 year Reserves-to-Production ratio for coal (vs. 45 for gas), significant coal still imported due to:– Land acquisition constraints– Still mostly centrally-planned allocation of coal to power plants– Bureaucratically-encumbered SOE producer (Coal India Limited)– Unrest in coal-producing regions

Source: BP Statistical Review of World Energy 2015

Coal GasEst. reserves (Mtoe), end of 2014 23,000 1,300

2014 production (Mtoe) 244 292014 consumption (Mtoe) 360 46

% domestic supply 68% 63%

United States thought it was running out of gas…

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• Reserves are not a fixed quantity• (Credible) high prices => technology innovation => new supply

Source: EIA Annual Energy Outlook 2013

U.S. Natural Gas ProductionUS Henry Hub Gas Price

Data Source: BP Statistical Review of World Energy 2011

Possibility of shale gas in India?

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• India’s proved reserves of conventional gas are ~50 Tcf; U.S. EIA estimates shale gas reserves on same order, possibly larger

• Govt. limited exploration to ONGC & OIL; early tests negative• Reality is we won’t know potential until upstream and

downstream frameworks for gas are more favorable

Source: U.S. EIA 2015

LNG market very deep

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Source: IGU, 2016 World LNG Report

Growing LNG export and import capacity

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Source: IGU, 2016 World LNG Report

Estimated Landed LNG Prices for April 2012 in $/MMBtu

Source: U.S. Federal Energy Regulatory Commission

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Estimated Landed LNG Prices for April 2016 in $/MMBtu

• “Asian premium” has significantly decreased due to fall in price of oil and growth in LNG supply

Source: U.S. Federal Energy Regulatory Commission

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Source: U.S. Federal Energy Regulatory Commission

Power from imported gas cheaper than power from imported coal at current prices

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• Probably unlikely that gas prices will remain so low

(See paper for LCOE model assumptions)

At $7/MMBtu gas, need $20-25/tonne carbon price to make gas-fired power competitive with coal

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• Solar incentives cost more. Solar REC price floor is Rs 3500/MWh (>$50/MWh). If displacing coal plant emissions of 1 tonneCO2/MWh, implicit carbon price in solar RPO is >$50/tonne CO2.

• Analysis does not account for pollution externalities of coal• Building gas plant could be seen as hedge against future climate and

air pollution policy

(See paper for LCOE model assumptions)

Gas shortages have been problem since HVJ pipeline came on line in 1990s

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• Industries and power plants sited along pipeline, but often had insufficient gas supply

Source: Mehrotra et al 2015

Gas shortages still a problem despite additions of regasification terminals to import LNG

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Source: Ernst & Young 2014

Domestic gas prices in India are administratively set

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Administrative Pricing Mechanism (APM): cheap gas allocated to favored consumers (especially fertilizer & power sectors)Non-APM: Closer to market-priced gas in theory, includes New Exploration Licensing Policy (NELP)LNG: Imported at market prices

• NELP, implemented 1999, supposed to allow licensees on new blocks to sell to anyone at market price

• KG-D6 gas field (disc 2002, online 2009) was test of NELP, but major price and allocation dispute between RIL and GoI amid declining output

• Price reform in 2013 would have increased gas price to >$8/MMBtu, but blocked by new government

• Low prices (and unpredictable regulatory framework) reduce incentive for gas development

($1.80 before May 2010)

Source: Anupama Sen 2015

Structural challenges around gas allocation

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Fertilizer sector favored with APM gas:– Agriculture sector involves >50% of India’s population– Heavily subsidized farm gate prices for fertilizer– Higher gas price means larger government subsidy burden– Could import more fertilizer, but may not be politically acceptable

Source: Ministry of Statistics and Programme Implementation

Most State Electricity Boards (SEBs) lose money due to tariffs that do not recover costs

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• Electricity supply organized at state level, with significant variation in performance

• Many SEBs cannot afford imported coal, much less gas (even though higher prices would expand supply)

Source: Anupama Sen 2015

Source: Indian Express Nov 4, 2015

Figures in Rs billion

Possible justifications for ignoring natural gas

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1) Domestic natural gas reserves are limited2) Imported natural gas risks supply disruption3) Imported natural gas is expensive4) Political economy and institutional problems around

gas allocation and pricing– Administratively set, low gas prices– Power of fertilizer producers and power companies– Electricity market structures can’t support gas

prices set by supply and demand

Gas vs. Solar for India’s Climate Contribution

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• Solar: Possibly less need to overhaul existing institutions, but low odds of achieving coal displacement goals

• Natural gas: More cost-effective climate mitigation, but institutional obstacles pose a major barrier in India– Do we have the stomach for major structural reform

to gas, fertilizer, and electricity sectors? (Sooner or later, these reforms will be necessary)

– What could we practically do now?

A plan to sidestep institutional constraints?

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• Identify a coastal state with a high-performing electricity market (Gujarat, Maharashtra, West Bengal?)

• Build a large combined cycle gas turbine (CCGT) plant with a small LNG terminal whose gas will be dedicated to this facility plus other local customers

• May be better not to be connected to larger gas pipeline infrastructure to avoid being tied up in gas allocation questions

Thank You

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