Natural gas market in India: evolution and future scenarios

Abstract

This study examined the evolution of gas markets in India and demand for gas in future. A review of literature showed that gas market growth was impacted by economic reforms, geopolitics, globalization and environmental policies. Thus the future of gas is examined in context of these drivers.

The following specific questions were addressed – i) What were the transitions in gas markets and how has the market structure evolved?; ii) What will be alternative scenarios till 2030?; iii) What would be the demand for gas in 2030 under alternative growth scenarios?; iv) What would be the impact of reforms in coal markets on gas demand?; v) How would changes in local and global environmental policies impact gas demand?; vi) What would be the impact of enhanced regional cooperation on gas demand?

The question about evolution of market structure was addressed using time transitions and case study methodology. The future questions were addressed using an integrated energy-economic-environment framework utilizing both the top-down and bottom-up optimization models. The main constituent of this framework was MARKet Allocation (MARKAL) model, a bottom-up model and AIM CGE, a top down general equilibrium model.

The research offers a number of findings. 1. First, Indian Gas markets have benefited from reforms as a more competitive market has been created. Gas Supplies have increased, by infusion of capital and technology from private sector and foreign players. Imports which happened due to the growth of global gas markets have further helped in removing supply constraints. 2. Second in base scenario, transport, building and small industries which currently constitute 4% of India’s gas demand will increase their share to 41% in 2030 and push the prices in Indian gas markets. This will reduce competitiveness of gas as an option for base load generation in power sector.Gas would however remain competitive for meeting the peaking demand and continue to remain the largest consumer of gas. 3.Third, policies to address failures in Indian coal markets are able to increase share of coal marginally at the expense of gas, but this leads to an increase in peak prices for electricity as utilization of gas based plants goes down. 4.Fourth, a carbon tax for achieving a global stabilization of 550 ppm CO2e does increase the gas demand from 230 bcm to 265 bcm. A cap on SO2 is however achieved mainly by coal based power plants installing flue gas desulphurization units. 5.Fifth, regional cooperation results in lower gas prices but not a higher demand for gas always as some gas based capacity is substituted by hydro power which is also a consequence of cooperation. 6.Sixth, high gas and oil prices results in significant reduction in demand for gas from power sector however marginal reduction from other sectors.

The contributions of the research are in the areas of methodology, data and policy making. The two key methodological contributions were development of an integrated modeling framework and differentiation in model of bulk and retail markets. Integrated modelling framework enabled policy analysis related to reforms, climate and regional cooperation. Differentiation of market between bulk and retail helped in handling of differentiated prices prevailing in the market.Contribution to Data involved creating strategic database including the energy balances at sub national level through primary data collection and GIS database to capture disaggregate results spatially and temporally. The contributions to policy areas are the quantification of implications of alternate policy regimes on the Indian gas market such as impacts of economic reforms, environmental policies and regional cooperation.