Collision course: India's rapid commercialisation of coal mining pits it against the expanding footprint of gas in the country | Photo:

Chasing coal when dubious gas appears the safer bet

The Jharkhand government moving India’s Supreme Court against the Centre is just the tip of the iceberg. It was ruffled by the Centre’s little to no consultation with state governments on its auction of 41 new coal blocks, even though the decision could dramatically alter India’s coal mining practices. Chhattisgarh, too, has flagged the blocks’ impact on biodiversity reserves within its borders, and the labour unions are bristling with indignation about what it means for job security and wages. 

The underlying issue is India’s re-purposed commitment to coal. For several quarters now, the government has championed the fuel as an indispensable part of the country’s energy security. Its Union Minister for petroleum also declared last December that India was stepping up to be the largest energy consumer by 2030. The element of pride that came with the target was hardly missed, but the approach has exposed faultlines. 

Coal may still be king, but globally its empire is increasingly unstable. Major miners, such as BHP and Rio Tinto, have publicly withdrawn from coal mining, as have staunch Asian financiers from funding coal plants. In India, though, the Centre is redrawing policies in a bid to make it as easy as possible for players to join its commercial coal mining bandwagon. It hopes that 100% FDI for global heavyweights and loosened entry rules for inexperienced firms will make India’s coal reserves and market irresistible, and therefore, profitable for all. The government’s no-holds-barred approach, though, has not yet seen much success in stirring interest among global players.

However, even though captive coal mines are arguably convenient for steel, cement and power, the Centre has fared poorly on capping coal plant emissions. The December 2021 deadline for  existing plants to install pollution control technologies will be overshot. Even more worrying of late is the slow realisation that the EIA (Environmental Impact Assessment) process to scout for conflict-free mining and industrial hubs may be simply producing mountains of paper. 

Globally, though, natural gas has become the preferred successor to coal. Branded as “molecules of freedom” by the US Department of Energy, it emits ~50% less CO2 than coal per kWh. But at the same time, it comes with fugitive methane emissions, which is known to be a devastating greenhouse gas, even though this is treated with selective amnesia. As far as India’s pursuit of clean energy goes, both coal and gas fall antithetical to the country’s decarbonisation goals. But in a toss up between the two, there is little doubt that gas is the lesser evil.

While industries have been shifting from coal to gas in recent years, the global economic slowdown which started in 2019 saw gas consumption grow by just 1.8% in 2019 compared to 5.3% seen the year before. The COVID-19 pandemic shock has seen demand suffer further with consumption in 2020 expected to fall by 4%. While supply and trade adjustments resulting from the demand slump and resultant oversupply has pushed spot prices for natural gas to historic lows, the oil and gas industry is cutting spending to make up for lost revenue. The global gas market is expected to begin recovery in 2021 on the back of strong demand growth in China and India. India, in particular, is expected to see demand rise while prices in the global market remain low, especially from the industrial sector which is expected to account for more than a third of the incremental growth in gas demand between 2019 and 2025. Gas prices though are likely to start their rebound during the winter of 2020 with recovery expected to continue through 2021.

Natural gas made up 6.2% of India’s energy mix in 2018, versus the global average of 24%. But it could grow to 15% by 2030. The Vision 2030 paper by the Petroleum and Natural Gas Regulatory Board (PNGRB) estimates that domestic demand for gas will have grown at a CAGR of 6.8% between FY13 and FY30. Data from the Ministry of Petroleum suggests India’s LPG consumption has averaged a CAGR of 8.86% since 2014

More importantly, gas-based power generation is expected to be 36-47% of the growth story. In absolute terms, the sector’s gas consumption will have jumped from 86.5 million standard cubic meters per day (MMSCMD) in 2012-13 to 354 MMSCMD by 2030. 

Three recent developments show how this will happen. 

  1. The Centre is expanding the country-wide city gas distribution (CGD) network of terminals and pipelines for residential customers and combined heating and cooling power plants (CCHP). At 8.25 million tonnes a year, the 2,757 km-long pipeline from Kandla in Gujarat to Gorakhpur in Uttar Pradesh will alone supply 25% of the country’s LPG demand. 
  2. India is building five new terminals and a breakwater facility at Dabhol, Gujarat, for supplies to 35 million new households and 7,000 CNG stations by 2029.  
  3. It has launched its first real time gas exchange — the Indian Gas Exchange (IGX). The exchange will allow gas customers to book cheaper capacities in as short-term as in within 24 hours. 

However, the IGX will only retail imported LNG. So growing reliance on natural gas could actually go against the goal of energy security, unless domestic supplies can meet demand. Yet, Niti Aayog, in its 2019 India’s Energy and Emissions Outlook paper, outlined that India’s electricity demand would triple by 2042 (over 2017). The paper implies that a switch to cleaner power is necessary and talks about super-critical and ultra-super critical coal plants. 

In that light, gas could be the better alternative because:

  1. It releases far less SO2 and NOx emissions than coal power — which is particularly relevant to India’s fatalities over toxic air quality. China has been ramping up its coal to gas switch to tackle its own air pollution. 
  1. Gas power plants are as effective as coal power for baseload electricity supplies. In the absence of appropriate grid-scale energy storage, they could complement India’s renewables capacity addition, even if they themselves are likely to be made redundant by falling prices of renewables
  1. Hydrogen’s high energy density makes it a particularly attractive new technology for heavy transport and industry. Both lack a viable alternative in batteries so far. Natural gas, which is ~94% methane (CH4), would be an inexpensive source.

Despite the government’s stance, the public consensus on coal power has already turned negative over the mess of stranded assets and the 573 GW of planned coal capacity cancelled between 2010 – June 2018. States such as Karnataka, Tamil Nadu and Rajasthan may back announcements by Gujarat and Chhattisgarh for “no new coal”. Investor sentiment has also soured for coal, but it remains stronger for gas. So the question is, is there room for both to grow? It seems quite likely that despite its shortcomings, gas could be the sole winner, which would render the Centre’s focus on coal pointless.

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