It is not often that geopolitical events make space for greater economic efficiency. As trade turmoil snaps and re-links supply chains across the globe, with costs rising more than ebbing along the way, the gas market deserves attention. The dynamics of this commodity are exposed to geopolitics in their very own way.
After Russia’s 2022 invasion of Ukraine, Europe’s dependence on Russian piped gas has tapered. This year alone, Europe’s imports of liquefied natural gas (LNG) are up 20%, over half of it from the US. Not surprisingly, Russia is scouting for new markets in friendly countries. As Mint reported this week, its state-run Gazprom is looking to set up an LNG terminal in India. To the extent greater gas usage can help us decarbonize our economy, such projects are welcome.
Our challenge lies in gas absorption. Lately, LNG prices have hovered around $11 per unit (of a million British thermal units), pricing it out of bulk usage categories like transport and electricity. But we can expect US gas production to rise after the White House lifted its lid on capacity expansion, reversing a decision taken by its previous occupant.
As US firms work at a feverish pace to expand, landed LNG could get more affordable. As for local demand, China’s case is instructive. It imports most of its supply, and yet, most of its trucking fleet has switched from diesel to cleaner LNG, which spews out less carbon. Piped gas from Russia, Myanmar and Turkmenistan, which works out cheaper than seaborne LNG, has helped China make that switch.
In India, half the gas we consume is imported (in LNG form), while 60% of domestic supplies are priced about 40% lower than global levels. Gas, however, remains a modest 6.7% or so of our overall energy mix. Given its advantages, the government aims for 15% by 2030, but this has been a struggle so far. Many of our LNG terminals languish; on average, they use only half their capacity.
If gas imports get cheaper, it would enable greater LNG adoption for the haulage of cargo by road. This can help bridge our transition from fossil fuels to clean energy. While electric trucks enjoy policy support, perhaps fiscal incentives could also be used to nudge transporters—small enterprises, mostly—to switch from diesel to LNG carriers, which are costlier to acquire.
Cheaper gas would also help deepen the penetration of piped supply for cooking, helping take homes off LPG cylinders that pollute more.
Meanwhile, a carbon market that’s emerging in India could catalyse the use of gas as a middle path in our net-zero journey. This market would get energy users to optimize usage in the specific context of their own constraints, by buying or selling carbon permits or credits, even as gradually tightened emission caps push the country to converge on its climate goals.
Broadly, the key to its success lies in high-integrity emission verification, which would ensure that carbon credits are valued properly and work as envisaged. LNG, supported by import terminals along our long coastline, could grow its share of our energy mix as the market begins to account for its edge on emissions over other fossil fuels.
Oil is a rival fuel that offers a cheaper alternative in LPG as Saudi Arabia continues to raise its crude output, but we would be better off using the cleaner option wherever possible. Gas doesn’t take carbon out of the mix. But it offers India an opportunity all the same. Let’s seize it.