Planning For The Power Sector Fuel Requirement 2035 - Draft 1

Final Draft
Role of Natural Gas in Indias Energy Basket in early 21st

Century
"We can't solve problems by using the same kind of

thinking we used when we created them."
- Albert Einstein
1. Introduction
As per the stand taken by India (INDC-Intended Nationally
Determined Contribution) in COP21-Paris Conference on
Climate Change-, for an economy like India which needs to
grow in order to emancipate millions of downtrodden who
till date have been deprived of the benefits of economic
growth, the questions to be answered are:
Growth at what cost to ecology, environment and
climate?
How to equitably distribute the fruits of growth and
emancipate the large portion of population- Have
Nots?
With this proposition in background if we look at what is

happening in the country; there are some initiatives that
K. N. Naik, CFSR, knnaik@yahoo.com
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Energy being a major enabler of growth and sustenance of

all sectors of economy, we need to plan the future energy
systems keeping in mind the objective of energy security
and which ensure the lowest ecological, environmental,
carbon and water footprint. This alone will help us leave a
livable world for the unborn future generations.
seem to be working in the right direction while others need

a paradigm shift.
The steps in the right direction are:
Improving energy efficiency in lighting sector by mega
scale promotion of LED bulbs
Large scale promotion of Renewable Energy
Granting energy independence to areas not connected to
grid or having unreliable power delivery systems by
promoting mini grids and micro grids based on renewable
energy (Solar, Rice Husk, biogas etc.)
Replacing diesel driven systems in irrigation and telecom
towers with solar or solar hybrid systems
Aim to achieve 40 GWs of solar rooftop systems
Putting a higher carbon price on coal
Plan to upgrade old low efficiency coal based power
plants and replace them with high efficiency
Supercritical and Ultra Supercritical power plants
Mandate emission control standards for all power plants
Giving up preoccupation with the concept of Economy of
Scale that is promoting centralised mega power projects
(fossil Fuel Based or Renewable Energy Based) without
paying attention to economics of the total value chain.
This may evolve a policy that promotes distributed
generation with waste heat recycling taking a leaf out of
German experience. In fact there is a dire need to grant
a special status to recovery and gainful utilisation of
Waste Heat. Link to an interesting article is given below.
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The steps where we need a course correction are:
http://www.renewableenergyworld.com/ugc/blogs/2016/
02/questioning_solaren.html?
cmpid=renewablesolar02272016
Like carbon price, put a penalty on water usage in energy
systems (renewables like solar and wind do not use any
water and wherever waste heat is gainfully recycled, need
for a cooling tower is avoided.)
While drawing a future roadmap, calculate the life cycle
cost of various alternatives putting a price on
externalities like environment and ecological damage,
pollution related health costs, land usage etc. There is
also a need to consider the life cycle recurring cost of
inputs apart from capital cost of Generation,
Transmission and Distribution facilities. Link to an
interesting article in this regard is given below.
http://reneweconomy.com.au/2016/australian-coal-vrenewables-how-much-will-it-cost-to-bring-electricity-toindias-poor-55815
Promoting mass transit systems and change in lifestyle
by promoting shared transport and protected bicycling
lanes. Link to an interesting article in this regard is given
below.
Electrify the transport systems to bring down use of

petroleum products which cause a major dent on energy
security
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http://cleantechnica.com/2016/02/26/bicycling-triplesin-london-while-driving-halves/?
utm_source=Cleantechnica+News&utm_medium=email&ut
m_campaign=5a45ee34f9RSS_EMAIL_CAMPAIGN&utm_term=0_b9b83ee7eb5a45ee34f9-331255693
Promote storage systems to improve the usability of

renewable energy sources
Economic growth and energy availability are very closely

linked. To quote one of the leading economists, Energy
development, interpreted broadly to mean increased
provision and use of energy services as an integral part of
enhanced economic development, While Indias GDP
growth since financial reforms of 1991 is creditable,
Indias ranking in terms of human development and
environmental sustainability index still continues to be
quite poor. It would, therefore, stand to reason that it is
essential that to support to ensuring for continued GDP
growth and to do so, India must plan such that Indias its
growth is it must be ensured that not constrained by lack
of energy is availability. Absolutely essential that Economic
Growth must continue and that same must not be
constrained by lack of energy availability.
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That India is on a growth path is beyond any doubt. That

India needs to be on continued growth path is also a nonnegotiable issue. Assuming that India continues to grow
at 8% or 9% for next 20 years, India would attain average
income level of the world in 2010 by year 2030. Not a big
achievement, but possibly enough at least to bring its
teeming millions below the poverty line to some semblance
of human dignity. All the same, it is a tough task as each
and every sector i.e. infrastructure, industry, agriculture,
logistics will need to plan their growth strategy in parallel
and in such a way that the growth is uniform and
inclusive. For growth to be inclusive, rural India must get
not just special but priority position both in mind and
heart of the planners.
If we look at the consumption of electricity, one of the most

convenient forms of energy, we see that per capita
consumption of electricity in India is far below other
countries. Human development index, which is calculated
from literacy rate, infant mortality rate and per capita
GDP, for India is closer to the bottom when compared with
the rest of the world.
The present status of the power sector is such that

practically every state in the country barring one or two
continues to be deficient both in energy and peak
requirements.
The shortages include scheduled cuts,
reported load shedding and frequency variations.
Against this, India imports over 70% of its crude oil

requirements and some 30% of current usage of natural
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Fair percentage of Indias people use traditional fuels such

as dung, agricultural waste and fire wood for cooking food.
Recent national survey revealed that for 86% of rural
households, the primary source of cooking was firewood,
wood chips and or dung cakes. In urban area as well,
more than 20% of all household relied mainly on firewood
and wood chips.
gas. Coal sector continues to have issues with respect of

environment, technology, logistics and high ash content.
So on supply side as well, India faces huge challenge of
security.
Considering issues as above, for continued desired
Economic growth for next 20 years, one possible scenario
projecting primary commercial energy requirements is as
per Table-1 below: It is predicted that to sustain 8 to 9 %
GDP growth, India must expand its Energy base by factor
of 4 to 5.
Increased concentration of Greenhouse Gases (CHGs) in

the earths atmosphere and overall warming of the
atmosphere has resulted in changing rainfall patterns,
disruption in hydrological cycles, melting of ice caps and
glaciers, rise in sea levels and increase in frequency and
intensity of extreme events such as cyclonic events.
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2. Issue of Climate Change and Sustainability
Tsunami in Japan and the disaster it caused is one of the

most recent examples.
Increase in global temperature is attributed to increase in
CO2 (considered to be most relevant CHG) concentration in
earths atmosphere. As can be seen from Fig.3, CO 2
concentration has sharply increased from 1960 onwards.
As shown in the table 2 below, India on one hand is the

4rth largest emitter of CO2, whereas on the other hand
one of the lowest emitter per capita.
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So
the question before us is what is the world energy scenario
going to look like in next 20 years or so? How can the
world be expected to respond to this rising temperature in
the globe?
It is perhaps politically necessary for India to take a stand

that our energy base has to expand to fulfill the
aspirations of its large populace and as a result, its CO2
emission will increase. That being so, India, Indians and
our leaders, all of us need to recognize that given Indias
large coast line and tropical nature of our its climate, the
impact of global warming such as submergence coastal
areas, shortage of fresh water resulting from melting
glaciers is going likely to affect India more than most of
OECD countries. So while it is good to argue about
supporting our efforts to curb CO2 by way of technology
and equitable fairness, India should and must create a
roadmap for energy basket with sustainability as a one of
the important factors.
Energy demand predicted by the report of International

Energy Agency (IEA) in their report of World Energy
Outlook
(2008)
is
shown
in
Fig.
5
below:
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3. World Energy Outlook
Fig.5
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It can be seen that from present to 2035, role of, Natural

Gas (NG), Renewable and Nuclear would increase faster
when compared with Oil and Coal.
4.
Indias one possible

Sustainability
Roadmap
to
Security
and
Need for each and every country to cross over from era of
fossil fuels to low carbon era is well depicted in the picture
below:
Let us refer to the creek between fossil fuel dependence

and alternative energy as Obama creek.
India faces a very tough challenge to economically grow as
well as control CO2 emissions to be a part of world
movement to control Global warming. CFSR, in its study of
the Energy sector for over 8 years have prepared a Road
Map for India to 2030 considering following key factors:
Energy Availability to sustain Economic growth
Improve efficiency both at supply and demand side.
Minimize CO2 emission
The proposed Road Map to cross The Obama Creek has
following three Planks:
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Least cost to the Economy
Natural Gas Transient fuel to low carbon era

Clean Coal Technology (CCT)
Rural Energy Parks
As will be shown below, NG is an ideal transit fuel to low
carbon era and that increasing its role in energy basket
with appropriate utilisation technologies and policies will
serve the purpose of CO2 emission control/reduction and
efficient use at no additional cost to economy but in fact
with some advantage.
5. Increased role of Natural Gas in Indias Energy Basket
There are many reasons to increase role of NG in the
Energy basket.
Natural Gas is extremely versatile fuel and can replace

any other fossil fuel in almost all applications.
Replacing petroleum products with NG would be

economical (even at the price of imported LNG since
LNG pricing formula is linked to oil prices and both
prices will move in tandem) to the economy as
historically the NG price has been considerably lower
than crude oil on heat equivalent basis and from all
indications, likely to remain so. In this context, it may
be mentioned that China is going all out to procure NG
it can in the international arena.
It is evident that if India were to expand its energy

system as planned, the country will be forced to import
burgeoning quantities of coal, crude oil and petroleum
products with the current trends clearly showing that
prices of all of them are going to rise in future.
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The compelling reasons are:
Importing LNG in place of these fuels will be import

neutral. LNG once gasified does not need any further
processing (Unlike Crude oil) before it can be used by
end users. Since it can be transported over long
distances by pipelines it causes minimum stress on
road and rail infrastructure (Unlike coal).
NG can be utilized for Power Generation in distributed

power generation (DPG) mode in industrial &
commercial applications. In this mode, recycled waste
heat can meet heating & cooling requirements
achieving overall fuel efficiency well over 75%. Even at
a higher NG price, with this level of fuel efficiency in all
probability it will prove to be more economical than
coal (imported coal prices have been moving up in
recent times) -even while not costing other
externalities-. And since power is being generated near
the end user, it helps offloading the T&D grid, avoids
need for T&D infrastructure augmentation and also
prevents T&D losses. All put together, it will result in a
much higher Total Energy Efficiency.
NG is the lightest amongst all fossil fuels. When

compared with liquid petroleum products, on
equivalent heat content, would emit 30% less CO2 and
60% less than coal based power generation and much
less in DPG mode.
It would thus be evident that enhancing role on NG in

the Energy basket would significantly reduce CO2
emission with no additional cost to the Economy.
Worldwide reserves of NG at present production rates are

over 60 years. To that if non-conventional sources like
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5.1 World reserves of Natural Gas
shale gas are added, reserves are expected to go well over

100 years.
See fig 8 & 9
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Fig- 8 Availability of Gas
Fig. 9 Probable Availability of Shale Gas
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Shale Gas is a game changer. Just a few years back, it

was widely believed that USA would be acutely short of
NG and would challenge Japan in terms of LNG imports.
Advent of shale gas has changed that. NG price in USA
has drastically dropped due to rapid increase in domestic
production of shale gas. In coming years, USA may be
expected to Export NG in the form of LNG
As we will see later, India is not blessed with large

reserves but as can be seen from table above, Countries
around India in Middle East and Asia Pacific have large
reserves.
The future demand for NG will depend on what future

policies on fuel mix. While deciding on the fuel mix for
the future, laying greater emphasis on energy efficiency
of the total value chain starting with resource
production, its transmission and distribution to final
energy service delivery at final user end will be of
paramount importance. This would require that the
concepts of Total Energy Efficiency and Delivery
Efficiency are internalized by the policy makers and
remain as deciding factors in every decision in the energy
sector.
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5.2 Demand for Natural Gas
TEE: A Key to Sound Energy Decisions

The concept of energy efficiency often is applied only to the
efficiency of a specific product, such as a boiler, furnace or
turbine.
A truer measurement of energy efficiency takes into
account all of the energy used or lost in the production,
processing and delivery steps involved in supplying energy
to run factories, businesses, homes and vehicles, plus the
efficiency of the energy-using product itself. Measuring the
efficiency of the entire energy cycle from production
through actual use is called "total energy efficiency," or
TEE.
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Natural gas a fuel with a delivery efficiency amounting

to about 90% from production to consumption offers an
extremely efficient alternative to serve end uses wherever
applicable. In contrast, the delivery efficiency for oil is
86% and the delivery efficiency for electricity is 27% as a
result of the efficiencies of the source fuels used to
generate the electricity as well as the losses during the
conversion of the source fuel to electricity and the losses
during the transmission of electricity to serve end use
markets.
It would be prudent to carry out an exercise to optimise

the energy mix against the constraints of Capital
Investment requirements in energy sourcing, conversion,
transmission and distribution infrastructure and final
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In Para 5, compelling reasons to increased role of Natural

Gas has been discussed. In this article, we would discuss
in detail role of Natural Gas in the energy basket. It is the
only form of fuel which would reduce CO2 emission while
reducing energy costs if its utilization is ensured with
appropriate technologies notwithstanding high price of
revapourised LNG.
NG can replace all fossil fuel in all applications.
usage as also take into account energy use per actual

energy service delivered including transit losses and
leakages.
As per demand projected in IEP Report of Planning
Commission, India would require over 1650 and possibly
up to 1850 MTOE of total energy in year 2032 (8 and 9%
growth respectively). If this is translated in terms of NG,
total demand could be of the order of 5000 to 6000
MMSCMD as against 170 MMSCMD of todays
consumption level. Worldwide, average of NG in energy
basket is of the order of 25%. In Russia, NG has probably
highest share in energy basket of the order of 50%. This is
primarily because Russia has around 30% NG reserves of
the world and even with 50% share in the Energy basket,
Russia continues to flare NG in Southern Siberia.
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Even IEP Report predicted required quantity of NG in the

energy basket in 2032 ranges from 197 MTOE to 240
MTOE or 540 MMSCMD to 730 MMSCMD as against
todays consumption of about 170 MMSCMD. Todays
consumption level includes about 50 MMSCMD of
imported LNG.
It can be seen from the Table-3 as above, IEP report

assumes domestic production of 100 MTOE or 304
MMSCMD.
Assuming we take 9% growth, total commercial energy
requirement by 2032 is of the order of 1850 MTOE of
which NG requirement is assumed to be 281 MTOE or 730
MMSCMD. In para-5, we have noticed compelling reasons
to increase role of NG in the energy basket. IEPs scenario,
India would be import dependant to the extent of (730304) 436 MMMSCMD. Given the compelling reasons
Redefined Energy basket in 2032 (9% growth)

As per IEP Report
Redefined
MTOE
%
MTOE
%
Coal
937
54.3
837
48.5
Oil
548
31.8
457
26.5
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to maximize role of NG in Energy Basket, it is

difficult to visualize why we would not redefine the
energy basket to increase role of 25% in the energy
basket.
N.G.
Others
240
1725
133
1858
13.9
100.0
431
1725
133
1858
25.0
100.00
Actually, there is no reason to restrict role of NG to

25%. All the same, increasing import requirements
from 436 MMSCMD to 431 MTOE or 1312
MMSCMD ,import requirement of 1008 MMSCMD (1312-
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304) will be a huge challenge (Same will be true for Coal

and petroleum Import) if anything more can be done, that
would be added bonus.
6. Roadmap Utilization pattern to increase role of NG to

25% in the Energy Basket
6.1 Introduction
Be ready to face shortages of fossil fuels
Domestic Coal:
Indian power sector is faltering in setting up new
capacities for want of fuel linkages and the existing
capacities are running far below their capacity causing
power cuts and black outs.
While India is said to possess large reserves of coal, the
actual production of coal is not as per what is expected
due to various reasons cited like delays in environmental
clearance, inadequate transport infrastructure and
demand not materializing due to delay in user projects.
Imported Coal
Although coal is mined in 70 countries, four companies

control global trade. These companies dont just control
the supply but they also set prices by entering into longterm supply contracts with customers. India produces
about 500 million tonnes of coal annually, mostly poor
quality. We will need four times more within next 20 years
in Business as Usual scenario. Some analysts peg the
import figure at 45 million tonnes by 2012 and 200 million
tonnes by 2020.
In short, getting a fix on coal supply, whether from traders
or captive mines, is a very serious matter for giant power
plants. The best mines are located in Australia, the US
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A report says:
and South Africa, but they are hugely expensive and it will
cost more and more as time passes. The coal producing
countries are already tightening export norms as can be
seen from the recent reports regarding Indonesia. A recent
report said, Director General for coal, Energy and Mineral
Resources Ministry, Indonesia, said last week that the
government proposes to cap coal exports at around 150
million tonnes a year in a bid to guarantee supplies for
domestic power plants.
Large quantities of coal (hundreds of million tonnes per
year- year after year) can be difficult to contract as an
informal cartel (COPEC) operates while controlling 70% of
worlds coal reserves.
Crude Oil
India is and will remain predominantly import dependent
notwithstanding recent discoveries of oil by Cairn as it will
more or less will go to supplement depleting receipts from
ONGCs existing fields.
World
over
conventional
oil
resources
are
maturing/depleting and more and more new finds are
from non-conventional sources like tar sands, oil shale
and deep offshore which are environmentally challenging,
risky and costly.
This will have a dual impact of restricted availability and
higher price levels.
As we have mentioned earlier in para-6, demand for NG

can constitute 100% replacement of coal and crude oil.
This is not practical or in the given scenario doable. So
before we go into demand, it will be necessary to establish
utilization policy and direct use of NG in the derived
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6.2 N.G. Demand
applications. This proposal must not be viewed as antimarket or directional. Not for a moment NG should be
directed towards any particular application but directed
through policy mechanism of incentive and penalty.
Proposed Utilization Pattern:
The
proposal is based on following principals:

Efficiency
Improvement in quality of life
Environment
Food Security
Use of NG for Power Generation:
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This application would be essentially coal replacement.

Given the huge gap in coal price and imported NG, to
generate power using NG in business as usual Central
power stations makes no economic sense. It is unlikely
that in foreseeable future, even if CO2 emission penalty
increases very significantly, it would be possible to justify
use of NG in central power stations. Central power plants
use combined cycle gas turbine (CCGT) plants with gas
turbines 100 MW and upwards. The combined cycle gas
turbine (CCGT) plants usually operate at about 50% fuel
efficiency.
The diagram-1 as below depicts typical
combined cycle plant:
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NG when used in Distributed Generation mode in

Industrial and commercial applications in Distributed
Power Generation (DPG) mode, it is possible to achieve 75
to 90% fuel efficiency due captive opportunities for waste
heat recycling which displaces fuels and/or electricity in
heating and cooling applications. NG can first used to
generate power and the waste heat from flue gas can be
utilized to meet cooling and heating requirements (CCHP).
Distributed Generation has an added advantage in that
since power is generated at the point of utilization,
transmission and distribution losses are avoided. Also,
once these applications are widely accepted, certain
expansion of T and D network would also be avoidable.
CCHP mode is shown below as diagram 2:
Diagram-2
On the other hand, if natural gas reaches the doorsteps of

the industries, and commercial enterprises, distributed
generation with Combined Cooling, Heating & Power
(CCHP) application can deliver fuel efficiency of over 75%
to 90% with gainful use of waste heat from power
generation meeting the heating and cooling needs which
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The difference as can be seen from diagram-2 and

diagram-1 is that let down steam after generating power in
the steam turbine is condensed for DM water recycle in
absence of any other gainful usage of low/medium
pressure steam. In the process latent heat which forms a
major portion of energy contained in the steam goes into
cooling water and eventually to the atmosphere on top of
the cooling tower. Since the size of the CCGT centralised
plant is in multiples of 100 MW+, the amount of steam
available would in such large quantities and in absence of
customers who can utilize heat from steam gainfully;
would need to be condensed and recycled as condensate
resulting in huge energy wastage.
It needs to be ensured that the usage of the cleaner fuel in

power generation leads to achievement of higher Total
Energy Efficiency, lower heat and electricity losses, lower
pollution and lower investment in generation and
transmission infrastructure creation. This can be achieved
only by promoting distributed generation with CCHP
technologies and setting up load centric smaller size plants
located near to user clusters with possibilities of waste
heat recycling. It is high time the country moves away from
the misconstrued concept of economy of scale which
ignores the concomitant need for T&D investment, loss in
transmission and distribution and huge percentage of
energy that is vented out to atmosphere via cooling towers
and chimneys. Some industries and commercial
institutions have seen the economic and environmental
sense in going for distributed generation with CCHP even
without any policy support. But the government policy
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hitherto were being met with use of other fuels and/or

electricity. Such diversified application would require a
very comprehensive awareness campaign and target
building with appropriate promotional policies. This is
being practiced successfully in European Union, UK and
USA which provide effective models of implementation
which can be adopted by India. Recently Chinas National
Energy Administration has guidelines to boost the use of
natural gas for small, distributed power plants 10-fold over
the next decade. By 2020, total gas-fired power generation
capacity at these small units is forecast to 50GW from a
current 5GW. While the power sector is expected to
increase its share in natural gas use, it is envisaged that
industrial and residential sectors will take the lead in the
push for gas.
needs to make this mandatory under the national climate

mission. It will be a crying shame if a gas based power
plant (or for that matter even a coal based plant) runs its
air conditioning plant on electricity rather than recycled
waste heat.
High level of efficiency as above will reduce CO2 emission

per unit of power generated to almost one sixth of that
generated in Coal based thermal plants. Combining all
advantages of CCHP application of higher efficiency,
avoidable cost of expansion of T and D network and
drastically reduced level of CO2 emission would make cost
of power generation in CCHP mode comparable if not
economical when compared with Coal based utility power
stations.
Even in absence of any supporting policy, a number of
industries and commercial enterprises have opted for NG
based Distributed Generation with Waste Heat Recycling
to serve the dual purpose of ensuring reliable power
supply and cost reduction. An example given below would
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Especially gas usage in power generation in distributed

mode with integration of CCHP technology could get far
greater mileage out of the same amount of gas and the
Indian manufacturers of these equipments have a
presence abroad while locally there is no encouragement
for them to flourish and help the country be more efficient
and cleaner while we keep drumming up Mega Power
Policy which throws out 60% of energy to air as waste and
adversely affect the environment.
It is not just fight an argument against climate change but
it is fight for efficiency, lower unit costs, energy
independence and long term sustainability.
amply highlight the advantage

Distributed Generation mode:
of
NG
being
used
DLF Place
HARD Rock Cafe in DLF Place is air-conditioned by
recycled waste heat. The mall has its own captive source
generators that run on compressed natural gas (CNG). The
air conditioning runs on exhaust from these generators.
The energy provided by exhaust gas equals to 1,500 tonnes
of air-conditioning. This would have required 1.8 MW
capacity, but VAMs help save that. DLF has installed this
technology in five office and mall complexes and is
planning to install five more.
Cost and efficiency of equipment in the range of 0.5 to 10
MW, i.e. gas engines and or gas turbines have become
comparable with their larger counterparts used in
combined cycle applications in the utility stations. CEA
report predicts that 40% of electricity to be generated gets
consumed in industry and commerce. Even if half of
industry and commerce requirements can be met with
CCHP applications by 2032, NG requirement in year 2032
would be of the order of 1000 MMSCMD.
Coupled with the requirement of NG for use

applications, piped natural gas (PNG) to
dwellings, compressed natural gas for vehicular
cities to alleviate environmental problems and
in other
domestic
traffic in
to create
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Other users of NG:
fertilizer manufacturing facilities for food security, it

should not be difficult to create demand for NG of the
order of 1300 MMSCMD and to reach 25% of NG in energy
basket. It will, however, present a huge challenge as we will
see below:
It is essential at this point to reiterate as pointed out in
Para 5.1 that there are compelling reasons to increase role
of NG in the energy basket. This is possibly the only
strand possible to cross OBAMA CREEK as of today which
will not only significantly reduce CO2 emission but at no
additional cost to the Indian Economy and possibly with
economic advantage.
7. Challenges to meet NG Demand of 1300 MMSCMD by
year 2032
7.1 Efforts to expedite Exploration and Production of
Hydrocarbon
Since Upstream Sector (E&P) was opened to private sector
in early nineties, there have been some major discoveries
in India to name a few:
It is extremely important that E&P Projects continue at

breakneck speed not only to maintain present oil and NG
production levels which may not be otherwise possible as
Indias major oil and gas fields namely Bombay High has
been producing for over 35 years and may not be long
before it starts depleting. As also seen, Indias demand for
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Mukta-Panna-Tapti both oil and gas in the western

offshore area
Rajasthan onshore primarily oil
Krishna Godavari Primarily NG
fossil fuel for next 20 years or so is expected to grow by a

factor of four to five..
In recent times, especially last three or four years,
participation by international firms has drastically
reduced primarily because of two reasons:
Large procedural delays in necessary approvals by
respective government departments
Interpretation of production sharing contract. Some
of the terms of contracts, valid for say 25 years are
altered retrospectively.
While contracts must be
honoured in both word and spirit, exploration while it
can be termed a scientific process, the activity is
largely based on indirect interpretation of data. Also,
all contractors spend huge amount of risk capital to
either succeed or brave failure.
Under such a
scenario, interpretation of contract should have lot of
objectivity.
Situation as above not only should be immediately rectified
not just in the interest of both Indian and International
companies but also of the Country. Almost 60% of Indias
potential oil/NG bearing area is yet to be fully analyzed.
So, the slogan must be more the merrier and all efforts
by the Government must be in that direction.
In todays NG consumption level of about 170 MMSCMD,

about 50 MMSCMD is met by imports. In next 20 years or
so, consumption level in scenario as presented should go
up to about 1300 MMSCMD. As we have seen, every effort
must be made to increase domestic production of NG. All
the same, present guess is that it should be possible to
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7.2 Create other Supply Options
reach about 300 MMSCMD, leaving a huge gap of about

1000 MMSCMD from our present level of 50 MMSCMD.
Obviously, all efforts must be geared up to increase
imports.
7.3 Import of NG in the form of Liquid Natural Gas (LNG)
Natural Gas being in gaseous state at ambient conditions
can be transported from exporting to importing country as
LNG or by a cross border pipeline depending on locations
of the two countries.
While there are examples of subsea cross border pipelines
(i.e. Algeria Spain), by and large when countries are
separated by large water bodies, LNG mode is preferred.
While India is making efforts to create some cross border
pipelines (Bangladesh-India), Iran-India, TurkmenistanAfghanistan-Pakistan-India (TAPI), it is believed that India
would need to very heavily depend on import of LNG.
Let us list down the steps required to carry Natural gas in
the form of LNG to end-consumers.
At the exporter end
Transfer
Load LNG in Ocean going cryogenic tankers
Page36
Discover and develop the NG field.

Lay underground pipeline to a port terminal
Liquefy NG from vapour state. This step would make its
consignment for long distance transfer at volume
decreased by a factor of 600.
Liquefied LNG to be stored in cryogenic tanks
Receive the same into atmospheric cryogenic tanks.

User end
Vapourize LNG and flow the same into pipeline to carry
the same to end-consumers
Facilities required to set up full value chain of LNG would
run into billions of dollars. Minimum size considered
viable is of the order of 2.5 million tonnes/annum ( about
10 MMSCMD). Entire cost of setting up value chain would
have to be borne by the end-consumers.
It would,
therefore, be essential that before finalizing LNG contracts,
India should have well defined end-consumers and with
capacity to pay for the end price which can support cost of
entire value chain as defined above.
India is blessed with neighbors on both East and West
Coasts who can have surplus NG for export. All the same,
to increase NG export from 50 MMSCMD to around 1000
MMSCMD in next 20 years is a huge challenge. For
example, while as of today we have 3 LNG terminals, to
increase imports to 1000 MMSCMD 20 more terminal
terminals would be required, adding on an average one
terminal every year.
Coal Bed Methane: Conventional NG is found either as

associated Natural Gas or non-associated gas in
sedimentary basis on shore or off-shore where
hydrocarbons are formed.
Depending on quality of
material buried, depth etc. either liquid or gas would be
formed. In either case, the fluid will contain wide ranging
hydrocarbon starting with methane and heavier
hydrocarbon like heptane, octane etc. If formed as liquid,
Page36
7.4 Other Sources of Natural Gas
it would still contain small quantities of gas. Similarly,

even when formed primarily Gas, it would contain small
quantities of heavy liquids, generally referred as
condensate.
NG produced with liquid is termed as Associated Gas and
other as free or dry gas. Similarly, when coal is formed,
certain amount of gas is also formed. This is generally
referred as coal based bed methane. Composition is the
same as certain associated or free gas. In fact, especially
in underground mines, before they are opened for mining,
it is generally advisable to recover gas first as it would
make mining safer.
UCG: Worldwide, enough development has taken place to

commercialize UCG and there is sufficient evidence that
this is a workable option.
For India, this could be
definitely a game changer. India has vast reserves of coal
below mineable depth, as well as good percentage of
Indias coal reserves are in forest land. On In both cases,
UCG would be a viable option. Technology is also available
to convert gas produced with UCG technology into NG. It
Page36
Shale Gas: Shale Gas, which is now changing energy

scenario in North America, is also found in sedimentary
basin both onshore and offshore. Shale Gas, again same
composition, is found in rather tight formation and
different technology needs to be deployed to recover it.
Also, there is some doubt as to its recovery as water used
in field development technology can contaminate subsurface water. Extent of reserves in India is still under
investigation. Initial indications are that India can have
substantial reserves. Other possible game changers in the
energy sector could be underground coal gasification
(UCG) and gas hydrates.
would, therefore, stand to reason that India must

posthaste set up demonstration facilities to establish that
the available technology is adaptable to high ash Indian
coal. The sooner it is established, the better as we have
seen India would be hugely import dependant on coal and
NG and hence NG from such sources would be very
welcome development.
Gas Hydrates: It is believed that gas hydrates, worldwide,
could be a huge resource, yet there are still technological
gaps and resource not yet ready for exploitation. Yet, as in
past, India should keep all options open and should there
be even reasonable chance of technological breakthrough
in foreseeable future, the same must be pursued. Since
the issue of NG is of Paramount importance to
INDIA,
there is every reason for India to mount its own R&D
programme to produce NG from Gas Hydrates. and if
feasible in public/private Partnership.
8. Policy Related issues:
While LNG prices, just like Price of Crude Oil when
produced form Domestic sources, will depend on is be
internationally benchmarked to price to international
price markets, The question arises as to what should be
price for NG produced from domestic sources. As we have
seen, since India E&P sector has been opened up, India
has fairly good success with new discoveries of both crude
oil and NG. This process must be encouraged as domestic
production will provide security as well as cost benefits to
the country. Almost 30 to 40% of gross revenue from
domestic production would go to the government in form
of levies, production sharing and other levies. So, even if
Page36
8.1 Natural Gas Pricing:
Domestic producers of Crude Oil are allowed international

price at the border, i.e. when producer gets his price at
well head, it would be equivalent to be price at the Indian
port from international source. As of today, no such
benchmark is available for NG.
Small producers,
essentially onshore, negotiate price with potential users.
Only major offshore discovery such as that of Reliance is
where the company was asked to discover price from
domestic markets. Government of India desires to keep
price of domestically produced NG low so as to support NG
for power generation and manufacture of fertilizer. This
step has to be counter-productive as to reduce import
dependence India wants both Indian and International
private oil companies to participate in E&P activities.
International and Indian private sector companies are
shying away in recent rounds of bidding. One of the
reasons is that unless price of NG is benchmarked, they
would be unsure of their returns in case of NG discovery.
Three benchmarks for prices for NG exist as of today
(Henry Hub in USA, European Hub and Asian Hub). As of
now, markets appear to be segregated as there is a vast
difference in pricing. Henry Hub prices depend on North
American requirements which at this time appear to be
self sufficient.
European Hub price appears to be
controlled by huge quantities of NG received by pipeline
Page36
we allow 100% of say LNG price at the Asian hub to

domestic NG, it would be at least 30% to 40% less costly
to the economy. This is in addition to savings of foreign
exchange. The present pressure on rupee could be one of
the reasons of Import dependency of crude oil and natural
gas could very well be one the reasons for continuing slide
of rupee against US Dollar.
from Russia. Prices at Asian Hub are controlled by

imports of LNG by Japan, Korea and now China.
There is a growing feeling that world markets will globalize
with price equalization. The timing, however, is quite
uncertain. So, for present, Indias benchmark price can
only be price of NG at the Asian Hub. Same principal as
crude oil should be adopted for NG. If India were to sell
NG from its discovery, cost involved by the producer to
liquefy and store LNG at the Indian port can be calculated
based on international norms and deducting such costs
from prevailing LNG price at the Asian Hub would give
border price at Indian port for exports. This could be one
logical way to arrive at domestically produced NG.
8.2 Utilization Policy:
As seen, NG can be used for all possible energy
applications. However, as also pointed out to raise role of
NG in energy basket from present 8% to 25% by 2032
would be a huge task. It would thus stand to reason that
when a commodity is in short supply, it would be
necessary to direct it towards optimum utilization. We do
not mean that by any stretch of imagination, that it should
be done by directive on the contrary, we propose that the
same should be achieved through policy initiatives.
As seen earlier, NG for power in CCHP mode is the
efficient way of using NG for power. As also seen, over
1000 MMSCMD can be possibly used in this application.
Incentive and even penalty policy based on efficiency
would be a way to divert NG for power for this application.
Most of the SMEs or commercial institutions would be in
surrounding areas close to urban area.
Page36
8.2.1 NG for Power:
8.2.2 NG for Domestic, Commercial Needs and CNG for

environment protection:
Whatever NG is required for the application as above
would be essentially petroleum product replacement and
would require no policy support except NG should be made
available at the door step.
8.2.3 NG for Large Industrial Use:
Again, so long as NG can be used by major industries such
as cement, paper, petrochemicals, metals, chemicals etc.
in combined cooling, heating and power cycle CCHP mode,
the same must be made available on the basis of
incentive / penalty for efficiency.
8.2.4 NG is Raw Material for Fertilizer:
Food is the most basic necessity for human beings.
Fertilizer is necessary for food security. Use of imported
LNG for producing fertilizer in the country would
drastically increase subsidy burden. All the same, basic
level of security is a necessity and to ensure base level
fertilizer production, whatever natural gas required should
be directed through policy.
Network
and
Local
Transport of Petroleum products or Coal is possible by

many alternate routes i.e. Road, Rail or Sea. Natural Gas
being in Gaseous state would require dedicated pipe line
distribution network. Creating such large infrastructure
around the country would require large investments. It
would be necessary to plan seamless development of
source, transmission network and LDZs. Such planning
would not only ensure that country ends up neither with
Page36
8.3 Infrastructure Transmission

Distribution Network (LDZ):
redundant investments nor stranded sources of supply.

Following is suggested:
8.3.1 Prepare Plan for National Gas Grid:
India has over 80 cities with population of over 20 lakhs.
Local distribution Zone (LDZ) around these cities should
be created through an exhaustive market survey around
each of the 80 cities, estimating present total demand and
best guess for 2032:
Small/Medium size industry that are amenable to
CCHP mode
Commercial demands, again in CCHP mode
Domestic requirements
CNG for automotive sector
All industrial clusters, planned SEZs etc. should be
included as local distribution zone (LDZ). These 80+ LDZs
in number would then become anchor loads and can be
connected by transmission network. As the supply options
keep on increasing, grid connectivity can be expanded. All
major industries, planned fertilizer plants can be
connected as new supplies become available. Seamless
development would be possible assuming LNG terminal or
developing a domestic field, constructing transmission
network as well creating distribution network in LDZs are
all taken up simultaneously.
It is also believed that a well defined plan as above with list
of defined consumers will assist Indian companies in
negotiating for LNG suplies and for project financing later.
Biggest road block appears to be the reluctance of power

sector (State subject) to let go of industrial and commercial
consumers.
These are the consumers who in effect
Page36
9. Entry Barriers
subsidize agro sector who in lot of cases receive power at

either no price or at heavily subsidized prices. Obviously,
to loose industrial and commercial (paying customers)
would mean that power distribution companies (DISCOMs)
would get into greater financial trouble. It is believed that
political / bureaucratic administration at some time and
point will have to look at economic advantages to the
country rather than political gains. Agro sector must be
supported that is not even subject of debate, but is it
necessary to subsidize all inputs, i.e. power fertilizer etc?
Direct subsidy to the needy has been a well accepted
concept and often debated but not implemented. State
level administration would need to posthaste take steps to
implement this. In this era of globalization and constant
threats from Chinese other countries, bold steps are
necessary.
10. Conclusion
Availability of indigenous coal is projected to be far

below the existing demand
Import of adequate quantity of coal has become

difficult and the international prices of coal are
showing an upward trend
Indigenous production of NG has fallen far below the

expected level
International LNG market is projected to get tighter

and tighter for at least next two decades with both
contracted and spot prices expected to remain at
higher levels
Page36
Energy scenario for India gets more and more vulnerable

day by day due to following developments:
With easy oil getting scarcer, difficult terrains will be

explored worldwide and hence oil prices are expected
to remain high relentlessly
The nuclear power projects are not progressing as

planned due to local resistance and Japans nuclear
accident has made things worse
The power generation capacity expansion plans are

way below expectation and even the existing plants are
struggling to get adequate fuels
It is beyond any debate that the country needs to

rapidly implement Renewable energy with necessary
promotional policies to increase energy security, but
renewable will not contribute to the energy basket
significantly in next two decades even if lofty targets
set by central and state governments are materialized.
Under the above situation, the growth of the economy

will be jeopardized unless the country finds a way to
rectify the situation. It needs to be reiterated that
availability of reliable energy in sufficient quantity at a
reasonable rate is a major enabler of sustained growth
of economy. To add to the above woes is the all
important factor of environmental quality and global
warming which has to underlie all future decisions.
India should and must continue towards controlling

carbon dioxide emission to the environment, considered to
be prime suspect on the issue of global warming.
Increased role of Natural Gas in the energy basket in India
would not only result in keep the process of CO2 reduction
but also allow both large and SMEs to leapfrog into energy
efficiency era when used in Distributed Generation mode
with waste heat recycling. India presently imports 30% of
its present Natural gas consumption levels. Given the
Page36
compelling reasons to increase its role, import dependency

will remarkably grow. It would, therefore, be necessary to
direct its use towards more efficient applications.
Page36
As we have seen, widespread use of NG in industrial and

commercial applications to generate power along with
heating and or cooling by waste heat recovery will
significantly improve energy efficiency for the industry
positively impacting economics its cost of production. As
we move towards globalization, use of NG as above will be
most essential for Indian Industry to remain competitive.

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Role of Natural Gas in Indias Energy Basket in early 21st

"We can't solve problems by using the same kind of

With this proposition in background if we look at what is

K. N. Naik, CFSR, knnaik@yahoo.com

Energy being a major enabler of growth and sustenance of

seem to be working in the right direction while others need

K. N. Naik, CFSR, knnaik@yahoo.com

The steps where we need a course correction are:

Electrify the transport systems to bring down use of

K. N. Naik, CFSR, knnaik@yahoo.com

Promote storage systems to improve the usability of

Economic growth and energy availability are very closely

K. N. Naik, CFSR, knnaik@yahoo.com

That India is on a growth path is beyond any doubt. That

If we look at the consumption of electricity, one of the most

The present status of the power sector is such that

Against this, India imports over 70% of its crude oil

Fair percentage of Indias people use traditional fuels such

gas. Coal sector continues to have issues with respect of

Increased concentration of Greenhouse Gases (CHGs) in

2. Issue of Climate Change and Sustainability

Tsunami in Japan and the disaster it caused is one of the

As shown in the table 2 below, India on one hand is the

K. N. Naik, CFSR, knnaik@yahoo.com

It is perhaps politically necessary for India to take a stand

Energy demand predicted by the report of International

3. World Energy Outlook

It can be seen that from present to 2035, role of, Natural

K. N. Naik, CFSR, knnaik@yahoo.com

Indias one possible

Let us refer to the creek between fossil fuel dependence

Least cost to the Economy

Natural Gas Transient fuel to low carbon era

Natural Gas is extremely versatile fuel and can replace

Replacing petroleum products with NG would be

It is evident that if India were to expand its energy

K. N. Naik, CFSR, knnaik@yahoo.com

The compelling reasons are:

Importing LNG in place of these fuels will be import

NG can be utilized for Power Generation in distributed

NG is the lightest amongst all fossil fuels. When

It would thus be evident that enhancing role on NG in

Worldwide reserves of NG at present production rates are

K. N. Naik, CFSR, knnaik@yahoo.com

5.1 World reserves of Natural Gas

shale gas are added, reserves are expected to go well over

Fig- 8 Availability of Gas

K. N. Naik, CFSR, knnaik@yahoo.com

Fig. 9 Probable Availability of Shale Gas

Shale Gas is a game changer. Just a few years back, it

K. N. Naik, CFSR, knnaik@yahoo.com

As we will see later, India is not blessed with large

The future demand for NG will depend on what future

K. N. Naik, CFSR, knnaik@yahoo.com

5.2 Demand for Natural Gas

TEE: A Key to Sound Energy Decisions

Natural gas a fuel with a delivery efficiency amounting

K. N. Naik, CFSR, knnaik@yahoo.com

It would be prudent to carry out an exercise to optimise

In Para 5, compelling reasons to increased role of Natural

usage as also take into account energy use per actual

Even IEP Report predicted required quantity of NG in the