India's Union Budget for FY 2024-25 keeps some focus on natural gas amid renewables push

India's Union Budget for the financial year 2024-25, via its strong thrust on renewables and drive to decarbonize industries, will keep some focus on natural gas although it heralds limited direct impact for the sector due to the absence of production-linked incentives and other reforms, industry sources said.

The budget for the year ending March 31, 2025, was presented on July 23 by Union Minister for Finance & Corporate Affairs Nirmala Sitharaman.

"No significant announcement for the gas sector was unveiled although I did hope for PLI [production linked incentives] for gas as India relies heavily on imported LNG," an industry source said.

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

Due to harsh heat waves in the first half of this year, leading to higher gas-based generation, and a delay in production commencement from ONGC's KG-DWN-98/2 asset, analysts at Commodity Insights expect India's LNG imports in 2024 to reach 26.8 million mt. This compares with the 2023 figure of close to 23 million mt.

"Although the budget does not provide direct PLI for the gas sector, there is a strong emphasis on strengthening the manufacturing sector and decarbonizing industries. The proposed emission targets for hard-to-abate industries could drive a transition from oil and coal to cleaner fossil fuels like natural gas, coupled with Carbon Capture and Storage," said Akshay Modi, senior analyst for South Asia natural gas, LNG, and hydrogen at Commodity Insights.

Some market participants also said they expected a reduction in the excise duty for CNG but that did not get announced, a market source said.

Meanwhile, sources pointed out that Sitharaman had perhaps not remarked on the inclusion of natural gas in the Goods and Services Tax regime, as that was likely to be discussed by the GST Council, a joint forum of the Center and the States.

Industry sources have been lobbying for the inclusion of natural gas in GST to rationalize taxes by eliminating multiple taxation by different states. This in turn would also level up transportation costs while also promoting the adoption and use of natural gas pipelines, according to them.

Gas prospects amid renewables push

India has set a huge target of achieving fossil fuel-free power generation capacity of 500 GW by 2030 and renewable energy and nuclear power are expected to be the predominant sources of energy by 2070, according to the Economic Survey 2023-24, which the minister tabled in the Parliament on July 22.

The government has announced that rooftop solar panels will be installed to enable 10 million households to obtain free electricity of up to 300 units each month, the minister said.

Installing the rooftop solar panels would likely add 30 GW of solar capacity and cut emissions by as much as 720 million mt of CO2 equivalent.

However, the survey projected various challenges in wider adoption of significant solar power generation capacity as it required huge land space and water sources. To install 60 GW of solar power, land area of about 600-900 sq km of might be required.

In the budget, Sitharaman proposed expanding the list of exempted capital goods for use in the manufacture of solar cells and panels in the country.

The government has released a list of 30 critical minerals for India required for renewable energy and battery storage technologies as China remains dominant in this space. The minister said customs duties on as many as 25 minerals, including lithium, cobalt and copper, will be exempted.

A policy for promoting pumped storage projects to boost electricity storage options also received attention.

In addition, the government plans to partner with the private sector to conduct research and development on small modular reactors and newer nuclear technologies as it aims to increase the share of nuclear power in the energy mix.

While coal remains the dominant source of power generation in India, the minister said the country's top power producer, National Thermal Power Corp., will tie up with Bharat Heavy Electricals to set up an 800-MW advanced ultra super critical plant.

"Despite the higher penetration of renewables, gas-based generation will not be impacted as natural gas or LNG is primarily used as a peaker unit," Commodity Insights' Modi said.

"Until battery storage or pumped storage technologies are fully developed, natural gas can play a crucial role in supporting the intermittency of renewables."

Industry sources also noted that softer international LNG prices and India's economic growth prospects would continue to support LNG demand.

Platts, part of Commodity Insights, assessed JKM -- the benchmark price reflecting LNG delivered to Northeast Asia -- for September at $12.012/MMBtu on July 23, while it assessed the West India Marker for September at $11.563/MMBtu.