Examining the impact of natural gas use on Indian economy and environment


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With the population growing by about 1% each year, the demand for fuels like oil, natural gas and coal is also ever-increasing in India. Entire economies survive on these non-renewable sources of energy. But what would happen to power and fertiliser industries, which solely rely on these fuels, as Indian natural gas reserves are used up? In a new study, researchers have tried to understand the consumption and production trends of natural gas in India and the effect of depletion of domestically-produced natural gas on the economy and environment.

The study was published in the journal Energy Policy and was a collaborative effort between researchers from Indian Institute of Technology Bombay (IIT Bombay) and Monash University, Australia.

Natural gas contributes to about a quarter of global energy consumption. In India, however, it constitutes only 6% of the energy consumed, while crude oil and coal dominate. The Indian government has promised to raise the share of natural gas to 15% by 2030. “Natural gas is being considered currently as a promising energy source because it is a cleaner fuel with low emission of particulate matter, ash and greenhouse gases for the same energy output,” says Prof Yogendra Shastri. He is an associate professor at IIT Bombay and a senior researcher of this study.

“However, the natural gas sector will see competition for use and will be affected by price trends as well as preference given for its environmental benefit,” explains Prof Shastri. “We wanted to study these factors over the next two decades, until 2040. The goal was to understand the possible transition of the natural gas sector in the Indian context, given these varied factors.” The study also proposes replacement fuel sources for when domestic reserves of natural gas are depleted.

The researchers traced the energy and resources required for the production of natural gas, and the emissions resulting from its consumption to assess the impact on the environment and economy. This method of analysis can help policymakers take strategic decisions regarding the introduction of natural gas in the market. They considered the impact in terms of individual environmental problems such as ozone depletion, particulate matter, acidification and global warming and also the resulting damage to human health, ecosystem and resource availability. Their analysis accounts for the impact over three different timescales or viewpoints — individualist viewpoint accounts for 20 years, hierarchist for 100 years and egalitarian for 500 years.

“These viewpoints are assumed to represent different individuals, organisations, or governments; each can be categorised as having one of the three viewpoints. By calculating impacts for all the three viewpoints, we capture the diversity in perspectives,” explains Prof Shastri. “This is useful since the future may be valued differently by different individuals. Here, we argue that someone with an egalitarian perspective, in addition to considering a longer time horizon, will also value the future more than the present. A hierarchist will value present and future equally, while an individualist will value present more than the future.”

The study predicts the future trends of gas production and utilisation of different forms of natural gas in India based on the data from past such trends. It shows that the natural gas reserves in India will be depleted by 2040, and the price of domestically produced gas will double due to scarcity. In fact, domestic gas production has been declining since 2011. The researchers suggest that, to counter fuel shortages, the government will need to rely heavily on imported liquefied natural gas (LNG) brought in through cargo ships. Due to increased fuel prices, the largest consumers of domestic natural gas like power, fertiliser and transport sectors too will begin to rely heavily on imported LNG. Domestic gas will only be available to city consumers who use it for cooking.

The study also predicts that piped natural gas (PNG), which has lower carbon emissions than liquefied petroleum gas (LPG), will replace it in urban households. In a similar improvement, rural users will begin using LPG in place of firewood. The adoption of these cooking fuels will have a positive impact on the environment and human health in the future.

By the year 2022–23, India is set to begin importing natural gas through pipelines laid across the country’s borders. This would lead to a decrease in imported LNG as the urban households will shift to pipeline gas. Since LNG, which requires more processing than pipeline gas, is expensive, the reduction in its import will be helpful to the economy, and natural gas will be available to urban consumers at a cheaper cost. However, by the year 2040, there may be a scarcity in supply of the imported pipeline gas as demand will continue to increase.

The increased use of clean yet carbon-emitting fuels such as natural gas will result in adverse impacts on the environment in the long run. Hence, despite the use of natural gas as a fuel source, the distant future may witness higher levels of ozone depletion and global warming.

The study discusses coal as a cheaper replacement fuel for large consumers of natural gas like the energy and fertiliser sector. The replacement of natural gas by coal in the industrial sector will lower the price for domestically produced gas which will be available for household needs. It would also result in a decrease in the need to import LNG. With a lower price and reduction in imported gas, coal as a replacement fuel may have a positive effect on the economy.

However, the positive impact is countered by negative effects on the environment. Although coal is cheaper and readily available in India, it also produces much less heat than natural gas. It also releases a larger amount of pollutants than LNG or PNG. As more industries switch to coal, the environment may suffer heavily from acidification, global warming and ozone depletion.

Natural gas as a fuel will have a positive social impact as well. Unlike LPG cylinders that need to be refilled time and again, pipeline gas will offer a steady supply of clean fuel to urban households. Use of LPG in rural households will not only ensure a healthy lifestyle but will also save a lot of time normally spent in collecting firewood and cooking over the chulha. The increased use of natural gas will also create new employment opportunities in the form of LNG terminals, city gas projects and petrochemical plants.

But, the use of natural gas also comes with its challenges. As India becomes dependent on imported gas, our fuel sources may be vulnerable to geopolitical issues. Further, land acquisition for laying gas pipelines is also a difficult challenge in the country. Subsidised rates of liquefied petroleum gas and cheap coal also offer tough competition to the adoption of natural gas in the Indian gas market.

Moreover, there is also the issue of subsidies. The fertiliser sector produces urea from natural gas at the cost of around 900 INR per 45 kilograms. However, the government subsidizes this cost by almost 70% to a cost price of 242 INR per 45 kilograms. At the current rate of production, urea subsidies amount to 7.51 billion USD per year. As the price of natural gas increases, the expenses from these subsidies will overburden the government. The researchers suggest implementing carbon tax for all the stakeholders such as power plants, fertilizer industries, and consumers (through pricing mechanism). They estimate that a carbon tax of 10 USD per tonne of carbon dioxide released into the atmosphere will amount to 3.31 billion USD collected per year, which would cover 44% of the total subsidy cost per year.

The researchers suggest that India needs to take certain policy decisions to induct natural gas in the fuel market in India. These should include changes in the process of urea production to restrict the use of natural gas in the process, subsidising gas-based power plants to encourage the use of natural gas in the power sector, and levying a carbon price to support all the subsidies. According to them, these measures will ensure long-term economic and environmental benefits as India embraces natural gas as an important energy source in the future.

“Nobody can predict the future. However, decisions, particularly policy decisions, have to be made based on some judgment of how the future may pan out. In that regard, the model provides a tool for policymakers to assess different policy alternatives and compare them,” Prof Shastri elucidates. The researchers argue that expensive natural gas import and high gas subsidies will burden the economy. However, more use of natural gas or LNG will lead to benefits in terms of reduced biomass use. “The government can possibly use this tool to understand the extent of this economic burden and compare it with environmental benefits. Hopefully, this will lead to more informed policy decisions,” he concludes.

This article has been run past the researchers, whose work is covered, to ensure accuracy. 


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