INDIA ELECTIONS: Policy catalysts and the role of gas in India's energy future

India's new government will emerge from its general elections with familiar challenges of keeping energy supply affordable, reliable and clean -- all of which underpin the goal for natural gas to have a 15% share of the country's primary energy mix by 2030.

The government first set this 15% target in 2017 when the share of gas was just over 6%, but nearly six years later the needle has not moved much. While the 15% target has remained unchanged, the energy landscape has evolved rapidly in that period, raising questions over whether it is still relevant.

There is, however, a strong case for a high gas consumption target -- India's domestic coal production surged to record levels to bolster energy security, but excessive coal consumption will need to be tempered to meet emissions goals. Meanwhile, renewable energy is set for exponential growth and natural gas can assume the role of a transition fuel for India.

Growth in India's downstream gas infrastructure has been tangible, expanding gas supply to millions of households, and putting the country on the global LNG map.

More importantly, the global LNG market has evolved to a point where it can be a secure source of supply, both for short-term requirements, as well as long-term energy security. Supply sources have diversified, anchored down by Australia, the US and Qatar, and shipping length continues to grow.

The challenge for the world's largest democracy as it emerges from its elections will be to accelerate downstream market reforms to make LNG more affordable, maintain business continuity for gas market investments and deploy gas usage where it makes a difference in keeping emissions down.

"I believe the existing policies will persist, with an ongoing emphasis on natural gas for residential customers," Ayush Agarwal, LNG analyst at S&P Global Commodity Insights, said.

"The focus remains on incentivizing biogas blending in city gas networks, fostering domestic gas production through additional offshore bidding rounds, and accelerating gas transmission and distribution infrastructure expansion," Akshay Modi, South Asia analyst for natural gas, LNG, and hydrogen at Commodity Insights said.

Government efforts are expected to focus on enabling open access in distribution networks, promoting small-scale LNG development, resolving downstream taxation issues and advancing gas storage initiatives, Modi added.

Infrastructure bottlenecks

India's gas demand is forecast to rise 47% to 9,381 MMcf/d by 2030, from 6,384 MMcf/d in 2023, and LNG imports are expected to double from current levels to roughly 40 million mt/year by 2030, Commodity Insights data showed.

Commodity Insights analysts expect the share of gas in India's energy mix to be around 6%, much lower than estimates by some India-based senior industry executives who are anticipating it to reach about 9%-10% by 2030 if various developments -- accelerated gas market reforms, increased gas-fired generation reflecting power market reforms and softer prices, and speeding up infrastructure -- reach fruition.

One highly anticipated reform is the inclusion of natural gas in the Goods and Services Tax framework that will eliminate multiple taxation by different states and industrial sectors and make methane much more competitive than propane for end-users.

But the move is a political minefield due to opposition by states that rely heavily on taxation for revenue and will be a litmus test for the new government.

India's downstream gas infrastructure growth has also been slow and mostly concentrated in the western state like Gujarat and in the northern states of the country. Except Dahej and a few other terminals, most Indian LNG terminals are underutilized as downstream pipeline networks remain incomplete.

The commissioning of the Dhamra LNG terminal and the Jagdishpur-Haldia-Bokaro-Dhamra pipeline have started addressing this disparity, industry sources said. Eyes are also centered on the government's national gas grid plans, industry sources added. Over 33,753 km of natural gas trunk pipelines were authorized in the country, out of which around 24,623 km of pipelines were operational, Hardeep Singh Puri, Minister for Petroleum and Natural Gas and Housing and Urban Affairs, said in a statement March 4.

Power bottlenecks

India's gas consumption profile is unique compared with LNG-reliant economies like Japan and South Korea. In 2023, nearly one-third of the demand came from feedstocks that includes fertilizers and petrochemicals, around 29% from industry and others, and only around 11% from power, Commodity Insights data showed.

The low penetration of gas and LNG in India's power sector is mainly because the fuels are unable to compete with coal or renewables. The bulk of India's gas-fired power generation capacity is severely underutilized, at around 13% in 2023, and where cheap domestic gas is available it is prioritized for the fertilizer sector.

However, India is the world's third-largest electricity market and energy demand is still growing with room for diverse fuel sources. The government also has the option to unlock more base load generation for natural gas by modernizing a power sector that is burdened with state subsidies, distribution losses and obsolete technology.

States such as Gujarat and Uttar Pradesh consume more LNG owing to pipeline connectivity and government mandate to procure more LNG for power, according to Commodity Insights. This leaves significant room for the government to balance out gas infrastructure for nationwide access.

Meanwhile, continued penetration in city gas distribution and long-haul transportation will require sustained policies in the coming years.

Fourth-largest LNG market

India can still do a lot to leverage its strong position as an LNG buyer and lead the conversation around the evolution of the market -- something Japan used to do in the initial years of demand growth -- and an initiative that will require significant policy impetus by the new government.

In 2023, India was among the world's top five LNG importers, and it continues to be an attractive market for long-term suppliers. India's current LNG import capacity is roughly 48 million mt/year, and Commodity Insights forecasts this to reach about 66 million mt/year by 2030.

Countries have used leverage as large LNG buyers to build and control LNG shipping capabilities, strengthen trading and options like destination flexibility, invite investment from producers in downstream projects and influence pricing mechanisms.