India – Gas Policy Brief

Like China, India faces an enormous challenge to transition to a low carbon energy future as the world’s second most populous country and third largest economy, still dependent on fossil fuels for 90% of its primary energy needs. The steep energy growth curve reflects a continued rise in energy needs per capita as wealth grows with development.

The country has the world’s fourth largest reserves of coal which continues to dominate the country’s primary energy mix at 56%, mainly used for power generation. Oil provides 30%, which is mostly imported and used principally for transport and industry. Natural gas at 6% is primarily used for power generation and by industry. Half the gas volumes come from rapidly growing imports of LNG and the rest from domestic production. Biomass is used for residential heating and cooking in villages.

The National Energy Plan estimates that India’s energy demand is likely to triple from 2012 to 2040, with electricity demand expected to rise 4.5 times. At the same time, India’s development priority is to provide electricity to all citizens to support the country’s rapid economic growth and offer access to clean fuel for cooking to improve health.

The transition to a lower carbon future will involve building a ‘gas-based economy’, with natural gas playing a critical role in powering industry and supplying gas to 70% of India’s homes while increasing the share of renewable energy and non-fossil energy (nuclear) which in turn will reduce dependence on coal and imported oil.

Under the National Energy Plan the government aims to increase the share of natural gas in the country’s energy mix to 15% by 2030.  Renewable energy will supply 14-18% of primary energy demand by 2040 compared to 4.65% in 2020.

Overall, India’s transition can be catalysed by natural gas becoming a fuel of choice in sectors such as industry, fertilizers and ammonia, but while the sector has been assisted by government policy, there remain serious structural and political complications from the interplay between national and state priorities and multiple and frequent changes to national policy.

The National Energy Policy (NEP) was announced in 2017 and is regarded as thorough though critics maintain it does not adequately acknowledge implementation challenges and other risk and has overly optimistic objectives without a clear roadmap for delivery.

The government is prioritising natural gas first for the city gas sector, followed by the fertiliser sector, power generation and other sectors. Many new trunk gas pipelines are under construction to the east and north-east of the country, which will add another 15,000 km in the coming years, notably trans-regional gas pipelines.

The government has proposed setting up a ‘Gas Trading Hub’ in India similar to Henry Hub in USA and the National Balancing Point in the UK but the lack of infrastructure, policy regulations and pricing are major stumbling blocks, and the plan is not regarded as feasible in the short term, even by ministers.

India has set an ambitious target under the NEP of delivering 175 GW of renewable energy capacity by 2022, as part of the Paris Agreement. This includes 100 GW of solar capacity and 60 GW of wind power. However, the country revised its target upwards in January 2020, committing to installing 450 GW RE capacity by 2030.

The National Electricity Plan sets out a target to achieve 275 GW of renewables by 2027, which would increase the share to an estimated 44% of installed capacity and 24% of electricity generation. India has been taking policy measures both at the national and domestic level to promote wind, solar PV and bioenergy. Wind power generation increased at an average annual growth rate of 14% between 2007-16 while solar power generation increased by 64% per year between 2013-17.