gas squeeze
While the share of coal in India’s electricity mix has remained fairly flat at that high level, the share of gas-fired electricity is projected to decline sharply to just 1.6% in 2022, the lowest since at least 2019.
Record high liquefied natural gas (LNG) prices were the main reason behind this decline in gas use, as cost-conscious utilities held off on paying more than double the 2021 average for spot LNG cargoes in 2022 .
The reduced demand for LNG was also reflected in India’s total LNG imports. These have declined by 16% through November from the same period in 2021, according to ship-tracking data by Kepler.
Those sharply reduced LNG imports by India – the fourth largest importer in 2021 – freed up LNG cargoes for others in 2022, and helped ease the power crisis in Europe that resulted from the war in Ukraine. Between Russian pipeline natural gas supplies decreased sharply.
However, for India’s power producers, with limited options for generating baseload electricity, less gas simply means they will have to burn more coal in 2022.
This is because as non-emitting solar power adds to the overall electricity supply during the day, India’s overall grid needs a continuous supply of baseload electricity at all times and especially at night. It can be produced effectively by burning fossil fuels.
Natural gas was expected to displace coal over time in India due to planned investments in gas import infrastructure and pipelines, as well as policy support to reduce the use of high-polluting coal in power generation.
But the recent jump in gas prices now threatens to not only halt but reverse those trends, stifling gas-related investment and supporting a continued reliance on coal.
Due to government subsidies and widespread support for the expansion of green energy, solar will continue to be the preferred new fuel for utilities looking to develop additional electricity generation capacity in India.
But if global gas prices remain the same throughout 2023, Indian power producers will continue to burn more coal than ever before to generate baseload electricity, undermining the environmental benefits of the record-setting renewable supply expansion.