India’s Gas Market Post-COP21
India is once again in the spotlight as a potential future growth market for gas, as demand elsewhere in the OECD and non-OECD recedes or grows increasingly uncertain. Yet, the view on gas from within India has been in constant flux over the last decade, with no realistic vision on its role in the energy mix. But in recent months, there has been an upsurge in India’s consumption of imported LNG – driven largely by the fertilisers, city gas and industry sectors – prompting a revival in policy activity around the reconsideration of gas’s role in the energy mix. At the same time, India has embarked on one of the developing world’s most ambitious targets, specifically to increase its renewables installed capacity by more than threefold (to 175 GW) by 2022, as part of a series of domestic policy targets made alongside its firm international commitments following its ratification of the COP21 agreement.
This paper disentangles the short-term developments and dynamics of demand in the main consuming sectors (power, fertilisers, industry and city gas), from the influence of longer-term determinants (prices, renewables policy, coal policy and pollution issues, and infrastructure) as enablers or constraints on the future outlook for gas. It presents three illustrative outlook cases for gas:
- A continuation of the status quo to 2024, where gas demand growth will continue to be driven by underpinning policy targets in fertilisers, industry and city gas, which could form a limited but reliable demand base for gas, and which will continue to grow comfortably in the short term, with some potential to scale up thereafter, subject to the infrastructure constraint.
- A role opening up for gas to 2027 in the likely event that India does not fully meet its renewables target – although this would present significant opportunities for gas demand, it is also constrained by prices, infrastructure, renewables policy and coal policy.
- An outlook in which coal to gas switching is proactively encouraged through fiscal policy in the power sector, opening up an important and immediate role for gas to 2027 and beyond. This could lead to a substantial and anchoring role for gas in the power sector, but would require a nearly fivefold increase in the ‘coal tax’ and a potential 30 per cent increase in associated electricity tariffs. This outlook is constrained by renewables policy and policy on coal and air pollution.
A likely outcome is some combination of the first two outlook cases. More importantly, this paper emphasises the highly dynamic nature of the Indian market post-COP21, making the point that the short-term dynamics and longer-term determinants could effectively be studied in a number of combinations and permutations, in order to garner a better understanding of the Indian market as it evolves and develops towards meeting India’s key energy policy goals.