India should take advantage of lower natural gas prices by signing long-term supply pacts in the current quarter to secure its energy needs, Deepesh Nanda, chief executive officer of GE Gas Power, South Asia, told Moneycontrol.
Natural gas prices have fallen amid lower demand in Europe due to warmer-than-usual temperatures this winter. Weak demand due to the recent COVID-19 lockdown in China, one of the largest consumers of natural gas, has also been a drag on prices. Prices of natural gas have been the most volatile in 2022 due to the Russia-Ukraine war.
“In the first three months of 2023, it is time for the Indian government to strike long-term agreements with countries like Qatar, the US, Australia and Russia, and see if we can get relatively low-cost natural gas,” Nanda told Moneycontrol.
India has set a target of increasing the share of natural gas to 15 percent of energy sources by 2030 from 6 percent in 2017. However, low gas output in the country and volatility in international prices have made it difficult for Indian consumers to secure supplies.
Power up
Nanda said India has about 25 gigawatts of gas-based power capacity but almost 14 gigawatts are not operational. Many gas-based power units have been idle or operate at low capacity due to their inability to secure fuel. The country’s thermal power capacity runs primarily on coal.
In the summer of 2022, a shortage of coal coupled with high power demand due to scorching temperatures led to a power crisis in the country. In December, the government asked state-run GAIL (India) and NTPC to increase imports of natural gas to supplement power generation.
Budget expectations
In the upcoming budget, Nanda expects announcements related to the use of natural gas and incentives for the electrolyser industry for boosting the production of green hydrogen.
“I'm hopeful that in this budget there is an emphasis on the use of natural gas. And the way the budget can play a role is by introducing natural gas under the GST regime. This has been asked for a long time,” said Nanda.
Finance minister Nirmala Sitharaman is scheduled to present the budget for FY24 on February 1. Decisions on GST are taken by the GST Council, which is a joint forum of the Centre and the states. But the industry is hoping for a recommendation in the budget from Sitharaman, who heads the council.
Price outlook
Nanda is hopeful that natural gas prices will normalise by the second half of 2027.
“In terms of future outlook on the gas price, I think the forward market strategy is saying that beyond 2027 second half, the prices will settle down to a single digit dollar per MMBtu,” Nanda said.
The benchmark Henry Hub Natural Gas Spot Price declined to below $3.50/MMBtu this month from $4.55 a year ago. While Nanda expects natural gas prices to remain muted, he said India should not depend only on gas and must invest in green hydrogen also for energy security.
MMBtu stands for million British thermal units and is a volume measurement for natural gas.
Fitch Ratings said India’s aim of increasing its share of gas-based power generation may be impacted by price volatility and infrastructure constraints.
“India’s inadequate gas pipeline infrastructure and potential execution delays in some projects under construction may delay NG demand growth. Underutilised existing liquified natural gas import infrastructure may slow new capex in the near to medium term. Still, the operationalisation of new city gas distribution (CGD) networks, the price advantage of NG against other fuels, and increased adoption of NG to comply with pollution norms would support long-term NG demand from CGDs,” Fitch said in the report.
Carbon pricing mechanism
Nanda said with the national green hydrogen mission also out, it is the right time for the government to come up with a carbon pricing mechanism. Carbon pricing can help to curb greenhouse gas emissions by placing a fee on emitters and/or offering incentives for not emitting.
“This is essential because that then adds a new revenue stream to anybody who makes an investment in clean tech,” he said.
Nanda said GE Gas Power is working on carbon capture technology in India. Carbon capture attempts to remove carbon dioxide – said to contribute to global warming – after burning gas, oil, coal or biomass before it enters the atmosphere.
“GE will play a pivotal front-end role in providing the equipment, the technology, the know-how, the installation, the testing, the training, and the execution of carbon capture projects. We are in the process of building a pipeline for such projects,” Nanda said.
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