why isn’t natural gas in india’s climate plan? scid india meeti… · source: igu, 2016 world...
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http://pesd.stanford.edu • Stanford University
Why Isn’t Natural Gas in India’s Climate Plan?
Mark ThurberAssociate Director, Program on Energy and Sustainable DevelopmentStanford University
Seventeenth Annual Conference on Indian Economic Policy ReformStanford University, June 2-3, 2016
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India has very low CO2 emissions per capita, but largest projected growth in absolute emissions
• India’s per capita CO2 emissions 30% of global average (~10% of U.S.)• Increase in emissions will be driven by coal-powered development
Source: IEA World Energy Outlook 2015
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Coal use will grow more in India than anywhere else
Source: IEA World Energy Outlook 2015
• Government goal of doubling domestic coal production by 2020
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India’s Intended Nationally-Determined Contribution (INDC) relies heavily on solar
Source: Sivaram and Shivnani 2015
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Source: Sivaram, Shrimali, and Reicher 2015
India’s targeted solar ramp
• Beware of charts that look like this!• 100 GW target for 2022 is ~1/2 of global installed capacity today• Does this plan “take the heat off” coal expansion plans?
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Various energy sources are mentioned in INDC
• Conspicuously absent: natural gas• Natural gas plants have ~1/2 CO2 emissions of coal plants (and
negligible emissions of SOx, NOx, particulates)
Source: India’s INDC, September 2015
Energy Source Details
Wind Largest renewable source in India: installed capacity –24 GW, 2022 target – 60 GW
Solar Grew over 100X from 2005 (2.4 MW) to 2015 (4 GW); plans for 25 solar parks; 2022 target – 100 GW
Biomass Currently 18% of primary energy, often very dirty; Current capacity – 4 GW, 2022 target – 10 GW
Hydropower Installed capacity – 46 GW, est. potential – 100 GW
Nuclear power Installed capacity – 6 GW, 2032 target – 63 GW
Coal Installed capacity – 167 GW; new plants required to use supercritical technology; coal beneficiation made mandatory; tighter efficiency and emissions standards mentioned in INDC (though few details)
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Possible justifications for ignoring natural gas
1) Domestic natural gas reserves are limited2) Imported natural gas risks supply disruption3) Imported natural gas is expensive4) Political economy and institutional problems around
gas allocation
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Gas resources more limited than coal
Despite 94 year Reserves-to-Production ratio for coal (vs. 45 for gas), significant coal still imported due to:– Land acquisition constraints– Still mostly centrally-planned allocation of coal to power plants– Bureaucratically-encumbered SOE producer (Coal India Limited)– Unrest in coal-producing regions
Source: BP Statistical Review of World Energy 2015
Coal GasEst. reserves (Mtoe), end of 2014 23,000 1,300
2014 production (Mtoe) 244 292014 consumption (Mtoe) 360 46
% domestic supply 68% 63%
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United States thought it was running out of gas…
• Reserves are not a fixed quantity• (Credible) high prices => technology innovation => new supply
Source: EIA Annual Energy Outlook 2013
U.S. Natural Gas ProductionUS Henry Hub Gas Price
Data Source: BP Statistical Review of World Energy 2011
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Possibility of shale gas in India?
[email protected] / 10
• India’s proved reserves of conventional gas are ~50 Tcf; U.S. EIA estimates shale gas reserves on same order, possibly larger
• Govt. limited exploration to ONGC & OIL; early tests negative• Reality is we won’t know potential until upstream and
downstream frameworks for gas are more favorable
Source: U.S. EIA 2015
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Estimated Landed LNG Prices for April 2012 in $/MMBtu
Source: U.S. Federal Energy Regulatory Commission
[email protected] / 13
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Estimated Landed LNG Prices for April 2016 in $/MMBtu
• “Asian premium” has significantly decreased due to fall in price of oil and growth in LNG supply
Source: U.S. Federal Energy Regulatory Commission
[email protected] / 14
Source: U.S. Federal Energy Regulatory Commission
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Power from imported gas cheaper than power from imported coal at current prices
[email protected] / 15
• Probably unlikely that gas prices will remain so low
(See paper for LCOE model assumptions)
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At $7/MMBtu gas, need $20-25/tonne carbon price to make gas-fired power competitive with coal
[email protected] / 16
• Solar incentives cost more. Solar REC price floor is Rs 3500/MWh (>$50/MWh). If displacing coal plant emissions of 1 tonneCO2/MWh, implicit carbon price in solar RPO is >$50/tonne CO2.
• Analysis does not account for pollution externalities of coal• Building gas plant could be seen as hedge against future climate and
air pollution policy
(See paper for LCOE model assumptions)
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Gas shortages have been problem since HVJ pipeline came on line in 1990s
[email protected] / 17
• Industries and power plants sited along pipeline, but often had insufficient gas supply
Source: Mehrotra et al 2015
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Gas shortages still a problem despite additions of regasification terminals to import LNG
[email protected] / 18
Source: Ernst & Young 2014
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Domestic gas prices in India are administratively set
[email protected] / 19
Administrative Pricing Mechanism (APM): cheap gas allocated to favored consumers (especially fertilizer & power sectors)Non-APM: Closer to market-priced gas in theory, includes New Exploration Licensing Policy (NELP)LNG: Imported at market prices
• NELP, implemented 1999, supposed to allow licensees on new blocks to sell to anyone at market price
• KG-D6 gas field (disc 2002, online 2009) was test of NELP, but major price and allocation dispute between RIL and GoI amid declining output
• Price reform in 2013 would have increased gas price to >$8/MMBtu, but blocked by new government
• Low prices (and unpredictable regulatory framework) reduce incentive for gas development
($1.80 before May 2010)
Source: Anupama Sen 2015
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Structural challenges around gas allocation
[email protected] / 20
Fertilizer sector favored with APM gas:– Agriculture sector involves >50% of India’s population– Heavily subsidized farm gate prices for fertilizer– Higher gas price means larger government subsidy burden– Could import more fertilizer, but may not be politically acceptable
Source: Ministry of Statistics and Programme Implementation
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Most State Electricity Boards (SEBs) lose money due to tariffs that do not recover costs
[email protected] / 21
• Electricity supply organized at state level, with significant variation in performance
• Many SEBs cannot afford imported coal, much less gas (even though higher prices would expand supply)
Source: Anupama Sen 2015
Source: Indian Express Nov 4, 2015
Figures in Rs billion
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Possible justifications for ignoring natural gas
[email protected] / 22
1) Domestic natural gas reserves are limited2) Imported natural gas risks supply disruption3) Imported natural gas is expensive4) Political economy and institutional problems around
gas allocation and pricing– Administratively set, low gas prices– Power of fertilizer producers and power companies– Electricity market structures can’t support gas
prices set by supply and demand
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Gas vs. Solar for India’s Climate Contribution
[email protected] / 23
• Solar: Possibly less need to overhaul existing institutions, but low odds of achieving coal displacement goals
• Natural gas: More cost-effective climate mitigation, but institutional obstacles pose a major barrier in India– Do we have the stomach for major structural reform
to gas, fertilizer, and electricity sectors? (Sooner or later, these reforms will be necessary)
– What could we practically do now?
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A plan to sidestep institutional constraints?
[email protected] / 24
• Identify a coastal state with a high-performing electricity market (Gujarat, Maharashtra, West Bengal?)
• Build a large combined cycle gas turbine (CCGT) plant with a small LNG terminal whose gas will be dedicated to this facility plus other local customers
• May be better not to be connected to larger gas pipeline infrastructure to avoid being tied up in gas allocation questions