From dirty to clean

Globally, natural gas is being used for industrial purposes and power generation, but in India much of it is being used in transportation and the fertiliser industry. In transportation, gas is replacing oil while in the fertiliser industry it is replacing naphtha. Gas prices in India have been lower than the import price, still power generators and other industrial users are reluctant to use gas, as they find coal a much cheaper option. This is also because the regulated gas supply is allocated on a higher priority basis to these users.

However, such a huge advantage of coal vis-a- vis natural gas may not exist in the long run. Coal prices have been deregulated in 2000, yet the public sector coal companies have not increased prices, mainly because major coal consumers are electricity generators from the public sector. Moreover, coal-based power plants are unable to switch over to alternative fuels. Since significant cost difference exists between coal-and gas-fired electricity, it is difficult to promote gas-based power generation in India, even though it is much more environment friendly.

India is also not a significant trader in natural gas, though this clean fuel has the fastest-growing market among energy products. India started importing LNG only in 2004 as it did not have the infrastructure to import it. For transportation, pipelines are more economical than LNG, though pipelines are not always feasible. Cost differences have, however, narrowed in recent years. While the costs of liquefaction and regassification have come down due to technological advancement, the basic costs of gas have increased. As a result, the proportion of liquefaction and regassification costs in the total import costs of LNG has reduced.

Moreover, LNG import offers flexible sourcing options while imports through pipeline would mean that the country would get fixed to particular suppliers. In any case, due to geo-political and logistical challenges, cross-border pipelines would take time.

Considering its own energy endowments, coal is going to be the dominant source of energy for India in the foreseeable future. However, there is scope for reducing its dominance because of environmental, economic and strategic reasons. India should encourage use of natural gas, considered the energy of the 21st century, by creating infrastructure and an appropriate regulatory framework. As of now, gas is replacing only oil. However, efforts should be made to replace coal as well. In any case, diversifying the sources of power would be a good idea.

Given the likelihood of coal prices rising in the future, it should be easier to incentivise gas-based power generation. With a large number of coal-based power plants being planned, it would be difficult to make such a shift. But India's long-term energy security is also an issue here. Shouldn’t India maintain a strategic, long-term reserve of the only fossil fuel it has in relative abundance?

Direction of research points to the potential for making clean fuel out of coal through liquefaction and gassification. We may keep a part of our coal reserves for the future use when such options would be technologically and economically more viable.

Tags: coal production, Liquefied natural gas, power generation, clean fuel