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Natural Gas For Power Generation, Shri R V Shahi, Former Secretary, Ministry of Power

In last couple of weeks a few reports have appeared in newspapers suggesting that perhaps there is thinking that natural gas would be used largely for production of fertilizer and that power sector allocation could be significantly less. In this context, there appears to be a need to examine following few facts and points of view.

  1. Way back in early 80s, when natural gas availability became significant, and when Gas Authority of India Limited was set up, this issue had been extensively discussed and debated. Even then the point that had been argued was that much larger quantity of gas should be made available for fertilizer. The concept of Imputed Economic Value was presented. It was then argued that power generation had an urgency and therefore greater amount of need. It was established that multiplier effect of electricity in the economy is much larger. In fact, an empirical relationship was also presented suggesting that electricity worth Rs. 1 Crore has a multiplier effect worth Rs. 20 Crores in the economy. That is how a chain of power projects were set up mainly by NTPC. Gas linkages were provided to them and the picture that emerged was that about 45% of gas went in for power generation, about 40% for fertilizer and the balance for rest of the sectors.

  2. In today's context of development, 25-30 years down the line, electricity has even greater influence on growth of almost every sector of the economy which contributes toward overall GDP growth. In fact, going beyond contribution toward economic growth rate, electricity is emerging as an important, vital and essential infrastructure, not only for urban India but also for rural India, for some of the very important needs of the society, such as good quality education, health services, access to TV and media, governance through internet access etc. If one was to compute the Imputed Economic Value (IEV) today, the weight of argument in favour of electricity generation could perhaps be even more.

  3. One of the reasons that power generation has greatly depended upon coal, in the thermal group, has been the lack of availability and uncertainty about gas supply and also about nuclear fuel. It has been recognized, well beyond doubt, that both these routes of power generation namely gas and nuclear should be encouraged in a significant way. The National Electricity Policy (2005) has advocated both these routes. Even then dominance of coal may inevitably continue in view of much larger size of expansion of electricity generation, from 135 GW to 800 GW in next 25 years. We also need to recognize that though we do have large coal reserves, these are not unlimited. Part of these also needs to be preserved for future generations.

  4. The concerns about global warming and other climate change related issues have attracted global attention at the topmost level of governments of different countries. These issues have become, in last two years, important agenda items for summit level discussions. Long term perspective on energy production and consumption is being greatly influenced by climate change considerations. India's position with regard to obligation for co2 emission continues to be, and for good and valid reasons, what it has been. Yet, we must not give an impression that inspite of domestic natural gas being available even that part of power production, which could have been based on gas as the fuel, will be substituted by generation through coal.

  5. At present (March 2007) the share of gas based power plant capacity is about 10% of the total installed capacity. As planned for XI Five year plan, in which only about 2100 MW on gas has been projected out of a total of about 69,000 of additional capacity, the proportion may go down to 7%. In the Working Group on Power for XI Plan, which I had the privilege of chairing, it was recommended in its Report (Jan 2007) that although gas was relatively a clean fuel there was uncertainty about its availability. Accordingly only 2,100 MW was projected for gas based capacity in the XI Plan. But this report goes on to say that more gas based projects could be taken up when there is clarity about availability of gas. It is a fact that over next 25 year time frame gas is not going to be more than 10-11% in the overall energy mix, yet any drastic decline in the proportion of gas based power plant capacity, in spite of gas being available, may not present a very convincing picture of power sector capacity profile. By 2012 when our total capacity will exceed 2,00,000MW, gas based capacity should be around 20,000 MW to retain, at least for the present few years, the existing share for gas based plants of about 10%. This would mean about 6,000 MW of capacity more than what has been planned on gas.

  6. Quite apart from the issue of climate change, which on its own is a substantial issue, another important consideration which needs to be kept in view is the lead time for construction and commissioning of gas based combined cycle power plants. As compared to three to four years required for coal based power plants, a gas based plant can start delivering power, in open cycle mode, in a period of 16-18 months, and in combined cycle mode in 24 months. We have shortage of power all around. In fact, there is a need for an emergency production programme for electricity. At the initiative and direction of the Prime Minster two years back, an emergency production programme for coal was formulated, when a number of power stations started experiencing severe shortages of coal supplies. This programme did help.

  7. It is a matter of satisfaction that India has discovered huge gas reserves. In the entire 10th Five Year Plan, practically there has been no growth in so far as production and supply of natural gas is concerned. First two years of the 11th Five year plan may also witness similar experience of a negligible growth. While some new discoveries may start giving additional production and supply of gas, because of depletion in the old fields, the net production may not see a visible increase. From 2009 onwards significant addition in gas production may be expected. Linked to this time slot, the emergency production plan for electricity generation could be made. In next two years, aligned to about 30 MCMD of gas, about 6-7,000 MW new capacity on gas could be made available.

  8. It is true that even the existing installed capacities based on gas as the primary fuel have not been fully utilized. About 13,000 MW of capacity based on gas have been utilized to the extent of 65-70% only, which means almost 4,000 MW of capacities have remain unused. Besides, approximately 1,500 MW of new capacity in Andhra Pradesh, fully constructed and ready for commissioning has remained as such for want of gas. Therefore, first priority obviously must be given to the existing capacities in operation and to the new plants which have already been set up. This would need about 20 million cubic meter per day of gas to be made available for these plants. Beyond this, new capacities with about 30 to 40 MCMD of additional gas could definitely be planned.

  9. The country is importing Liquefied Natural Gas (LNG), regasifying the same and using it for power generation, fertilizer and for other industrial needs. A few examples of fertilizer plants being set up in Middle East countries are examples of really a good strategy. Even Indian Govt. has encouraged such initiatives. There is no point in using LNG, which only ads to the cost of gas by way of first liquefying it, transporting it in specially designed vessels, and then regasifying it. All these add to the cost.

  10. However, there is another school of thought on the issue of relativity in respect of Imputed Economic Value (IEV). The view is that production of fertilizer and use of natural gas for the same may enhance the level of comfort on food security. This school of thought also advocates and emphasizes on the multiplier effect of fertilizer on economy. Both theses perspectives are extremely important. No doubt, food for our people is most important and its priority has to be at the top. As regards food security, vulnerability of India, and the backup arrangement that could be made, needs to be properly evaluated. Firstly we are not as vulnerable today in the matter of food as in energy. Infact energy security has assumed a much greater proportion and significance not only in Indian context but globally. Secondly, if we can predict the problems in relation to food supplies, even a few months in advance, practically it should be possible to make appropriate arrangements by way of regulating export or through prearranged imports or both. In the matter of electricity this type of convenience, for variety of reasons, is not available. In today's context of transmission system development, it may not be possible to import electricity from far off countries. Besides, there would also be the aspects of safety and security of trans-national transmission grid, which will have direct impact on security of electricity supply.

  11. Opinions might differ on relativity. Even those who advocate larger allocation of gas for power sector, obviously do not hold the view that gas for fertilizer should not be a priority. This is precisely the reason that even within the limited quantity of gas that has been available, close to 100 million cubic meter per day, power and fertilizer have more or less same share of consumption. The issue to examine is whether we should not follow a pattern which has evolved in many parts of the world. Many countries have tended to set up fertilizer production facilities, using gas in other countries, and import fertilizer for their consumption. This arrangement has been found to be more economical. It has been possible for them to use local gas for power generation, produce power at comparatively cheaper rate in a more environment friendly manner and thereby enhance the overall economic growth. The Integrated Energy Policy Report (August 2006) submitted by the Expert Committee headed by Member (Energy), Planning Commission has also recommend (in Chapter XII). "In case India can use diplomacy to access cheap natural gas under long term (25-30 years) arrangements, it should consider setting up captive Fertilizer and / or gas liquefaction facilities in such countries. This would essentially augment energy availability for India".

  12. In the next 2-3 years, we may have approximately 120 MCMD of additional gas which will be added mainly on account of KG basin gas production. This will increase further in subsequent to 2-3 years when ONGC & Gujarat State Petroleum Corporation (GSPC) increase their production. Keeping in view the arguments advanced earlier, there is a strong case for allocating about 50% of projected additional gas for power generation, 35% for fertilizer (with clear stipulation that a few fertilizer plants could also be set up abroad near gas sources both in public sector and private sector) and balance about 15% for other sectors.