Dwindling gas output hits Indian power sector

Dwindling gas output hits Indian power sectorIndia wants to double the proportion of gas in its energy mix, but many power plants are lying idle because of the gas shortage due to natural decline in outputIndia’s natural gas production has been declining for the past 29 consecutive months. The decline not only hurts generators, oil refineries and steel plants, it also slows the pace of economic growth to a decade low.India, the world’s 4th largest energy consumer, had 20,359 MW of gas-based electricity generating capacity or 9 per cent of the total as of the end of May. Asia’s third-largest economy uses coal for nearly 56 per cent of its energy needs, while oil, mostly imported, and accounts for 26 per cent.Sharp decline in outputPower projects of about $21 billion are stalled by the lack of fuel. According to the Association of Power Producers, more than 8,000 MW of new capacity is lying idle because of the gas shortage due to dwindling output.For the past 3 years, Reliance Industries failed to generate enough gas in the Bay of Bengal which is forcing power stations and oil refineries to shut down or buy more expensive gas from overseas. Even gas production from Reliance’s KG basin has dropped more than 75 per cent in the past 3 years. The company stated that the drop was due to reservoir complexity and a natural decline in output.Due to gas shortage, GVK Power has closed this financial year with the lowest profit from operation in the past 8 years.Cushioning power firms from gas hikeIndia has identified the problem and decided to follow similar steps what it took in coal to reform India’s troubled power sector. To reform the industry, the government has decided to bring in more investment to the gas sector as well as hike costs for consumers by around 50 per cent from next year. The gas pricing formula, effective April 01, 2014, was revised based on the recommendations of Rangarajan Committee.The committee has used long-term and spot LNG import contracts as well as international trading benchmarks to decide a competitive price for India. The panel had recommended revising domestic gas prices in every month; the oil ministry opted for quarterly revision.Energy companies that have gas production have welcomed the decision as price hike would boost profits. “The rise in gas price will … encourage the upstream companies to invest in exploring more challenging frontiers to augment gas production,” Sudhir Vasudeva, Chairman, ONGC, said in a statement.Seeing the possibility of increased natural gas, Naina Lal Kidwai, President, FICCI, said, “The revision in natural gas price will bring in the much required technology and risk capital from foreign majors to tap vast unexplored resources in the deep and ultra deep water frontier basins. This also has the potential to usher in the much needed gas revolution in India with an increased share in our energy basket in line with that of developing countries.”Price hiking not quick fixAt the current gas price of  Rs.4.2 per MMBTU, DGH has not been finding gas discoveries viable, said M. Veerappa Moily, the Minister for Petroleum and Natural Gas. While speaking at an ASSOCHAM seminar on Indian economy, Mr Moily emphasised that people should understand the necessity of the hard decision like revision of gas prices.However, approving gas hike for the first time in 3 years isn’t a popular decision. “Power has to be produced at an affordable price; fertiliser has to be produced at affordable prices. Those issues will be addressed,” Finance Minister P. Chidambaram told a news conference.Powering futureGas fuels only about 7 per cent of power stations, but India’s gas demand is rising fast. India wants to double the proportion of gas in its energy mix by 2020 from 10 per cent now.The current issue isn’t the gas price; it’s the availability of the fuel. Many plants lie idle or operate at low capacity because there is not enough fuel available. Government’s reform actions — including allowing exploration work in mining lease area, securing defence clearances to long-pending blocks, and revision of gas pricing — can improve the gas power situation in long run.The message for India is clear — enable oil and gas business environment and deploy technology to enhance energy security and achieve the goal of self-sufficiency.