History of Coal and Natural Gas
1. Since the beginning of industrialization in the 19th century, coal has had a significant impact on the world’s energy supply. To this day, coal is still one of the leading energy sources amongst all the fossil fuels. India too, has had a long history of commercial coal mining spanning over 240 years. Started in 1774 by East India Company in the Raniganj Coalfield along the western bank of river Damodar, the Indian coal industry has consistently evolved over the ages. With the enactment of the Coal Mines Act, 1973, all coal mines in India were nationalized, which otherwise, had primarily been a private sector enterprise. Subsequently, Coal India Limited (CIL) was constituted as a new public-sector company on 01 Nov 75, to enable better organizational and operational efficiency in the coal sector. CIL is now the world’s largest coal-producing company, which produced 554.14 Million Tons (MT) in 2016-17, contributing to 84% of the country’s entire coal output. However, the monopoly over commercial mining that state-owned Coal India enjoyed since nationalisation in 1973, was broken by the government in Feb 18, by permitting private firms to enter the commercial coal mining industry.
2. In contrast to the Coal Industry, the first commercial discovery of oil and natural gas in India was made in 1889 in Digboi, Assam. However, the Natural Gas Industry gained significance only in the 1970s, after the discovery of large reserves in the South Basin fields by Oil and Natural Gas Corporation Limited (ONGC). Subsequently, the state-owned Gas Authority of India Limited (GAIL) was created in 1984, as a central Public Sector Undertaking (PSU) under the Ministry of Petroleum ; Natural Gas (MoPNG), to promote gas use and develop midstream and downstream gas infrastructure.
3. While natural gas has historically been a part of India’s energy mix, it has never played a prominent role till date, due to lesser reserves in comparison and relatively easier availability of coal. With the 5th largest proven coal reserves in the world after US, Russia, Australia & China, selection of coal as the dominant fuel in the country’s energy mix is but obvious. However, the demand for natural gas is expected to rise in future, due to the increasing need in energy production and the lesser environmental effects it has, compared to other fossil fuels.
4. Though the energy sector in India is expanding quickly, it is set to face further challenges due to its dependency on fossil fuels. While the government executes new projects towards shifting to renewable sources of energy, till such time both coal and natural gas will continue playing a critical role towards ensuring energy security of the country. Therefore, utilisation of the two most important fossil fuels for meeting the ever growing energy demand of the country has to be carefully weighed and judiciously exercised by the policy makers.
5. The aim of this paper is to compare coal with gas in the energy basket of India and discuss the long term plans of the government towards ensuring energy security.
INDIA’S ENERGY BASKET
6. Commercial primary energy consumption in India has grown by about 700% in the last four decades. The country’s per capita energy consumption was 0.62 tonne of energy equivalent in 2016, which is well below that of developed countries. Driven by the rising population, expanding economy and a quest for improved quality of life, energy usage in India is expected to rise. Considering the limited reserve potentiality of petroleum ; natural gas, eco-conservation restriction on hydel project and geo-political perception of nuclear power, coal will continue to occupy centre-stage of India’s energy scenario. At the same time, India is giving priority to move towards a natural gas-based economy by evaluating methods to increase local production while also creating infrastructure to import it, as mentioned by PM Narendra Modi in his speech during the Petrotech-2016 Energy Conference in Dec 16. The world sees natural gas playing an absolutely key role as a ‘bridge fuel’ in transitioning to a lower-carbon economy, and therefore, there is a need for India to align its policies towards a common goal. The paper will study the role of coal and natural gas in India’s energy basket in more details in the subsequent paragraphs.
Coal – India’s Energy Choice
7. Amongst fossil fuels, India is most well endowed with coal. The energy derived from coal in the country is about twice that of energy derived from oil, as opposed to the rest of the world, where energy derived from coal is about 30% lower than energy derived from oil. Hence, coal becomes extremely important in the country’s energy mix, especially due to its inherent large thermal power capacity and negligible price volatility compared to petroleum. Furthermore, coal industry is also a huge employer in our populous country. For instance, CIL alone is one of the largest corporate employers with total manpower of 302785 as on 31 Dec 17.
8. The large power requirement and solid fuel demand in various industries brings to fore the need for efficient coal exploitation, investment in related infrastructure, and a forward-looking regime. According to India Infrastructure Research, the total coal-based installed capacity stood at 197 GW as of Mar 18, accounting for about 58% of the installed capacity of 344 GW across all sources of power generation, and is likely to go up to more than 330-441 GW by 2040.
9. Coal Reserves. The Geological Survey of India estimated 315.15 billion tonne of coal reserves according to their survey of Apr 17. The reserves have been found mainly in Jharkhand, Odisha, Chhattisgarh, West Bengal, Madhya Pradesh, Telangana and Maharashtra. The Lignite reserves in the country are estimated at around 44.70 billion tonne and the major deposits are located in Tamil Nadu, followed by Rajasthan, Gujarat, Kerala, West Bengal, J;K and Puducherry.
10. Coal Production and Imports. Out of the total proven reserves, Coking coal which is the key material for the production of steel, accounts for only 11%, whereas non-coking coal, which is primarily used in power generation and cement industry, accounts for 89%. Despite the large reserves held, India is forced to import both coking and non-coking coal mostly from Australia, Indonesia and South Africa and some percentage from US and Canada as well. Even though the coal imports have been reduced, the country’s total coal imports rose for the first time in three financial years in FY 2017-18, and the value of India’s coal imports rose by 38.2% to $20.17 billion.
11. The government has been helpless to eliminate the imports completely, since many new power plants built in India are designed to process more efficient, higher-calorific value coal than what is produced by Indian mines. As a result, 83,100 MW of coal-based thermal power capacity in the country is either partially or fully dependent on foreign coal. However, under the guidance of Ministry of Coal, CIL has taken the first step for substitution of imported coal with domestic supply. Frequent one-to-one interactions with Power Generators have been held to devise modalities as per suitability of each Power Station.
12. Last year, India was the second largest coal consumer in the world after China, with a share of 11% in the global coal consumption. Coal Industries in India consumed 841.6 MT of raw coal in 2016-17. The largest consumers of coal were electricity generation (527.3 MT), steel and washery industries (54.2 MT), cement industries (6.4 MT) and sponge iron industries (5.7 MT). The demand for coal in 2017-18 was estimated to be 908.4 MT, whereas the domestic availability was estimated at 730.1 MT. The gap of 178.3 MT was projected to be met through imports. With the estimated total reserves and CIL alone having identified mines with production capacity of 908 million tonnes so far, the Indian coal can easily last for more than 300 years.
13. Policy Initiatives and Reform Measures in Coal Sector. In order to achieve the planned growth in production, CIL under the guidance of Ministry of Coal has taken multiple measures like planning of high capacity mines with state-of-the art mechanization, modernisation of existing mines for increasing productivity, ensuring implementation of on-going projects in time bound manner to achieve targeted production as per schedule, capacity augmentation of running projects etc. CIL has also undertaken three major railway infrastructure projects to be executed by Indian Railways Authority in growing coalfields of South Eastern Coalfields, Mahanadi Coalfields and Central Coalfields.
Natural Gas – Bridge Fuel
14. The gas sector in India can be said to be in a transition phase. Following the success of KG-D6 gas discovery, the sector has witnessed its share of highs and lows. A significant quantum of domestic gas finds in the east coast KG basin in 2002, and the commissioning of LNG regasification terminals thereafter on the west coast around 2005 were significant milestones. This paved the way for growth in transportation infrastructure, provided gas to core sectors such as fertilisers and power, spurred the planning and growth of City Gas Distribution (CGD) and new gas-based industries and, most importantly, helped in reducing the carbon footprint. However, the sector has not been able to take off in India in the way it was expected to, with the worsening of the domestic gas supply situation.
15. Natural Gas Reserves and Production. The estimated reserves of natural gas in India stood at 1289.81 Billion Cubic Meters (BCM) as on Apr 17 as against 1227.40 BCM in Apr 16, showing an increase by 5.08%. The largest reserves of natural gas are located in the Eastern Offshore (39.37%) and the Western Offshore (23.44%). The gross production of natural gas in 2016-17 was 31.90 BCM, a decline of 1.09% from the previous fiscal. 78.5% of natural gas production is by ONGC and OIL from nomination regime and remaining 21.5% of natural gas production is by private/ JVs companies from Production Sharing Contract (PSC) regime. The production had peaked in 2010-11 with 52.22 BCM, and ever since the production of natural gas has been on a decline, year on year, for the last seven years. This clearly illustrates the pressures natural gas industry is facing amid the Indian authorities’ ongoing energy market reforms.
16. The shortfall in production is mainly attributed to less than planned production due to evacuation constraints, natural decline and underperformance of certain gas fields including closure of few wells and also due to delay in grant of Petroleum Mining Lease (PML) for certain wells.
17. Natural Gas Imports. The country is dependent on imports for about 44.4% of its natural gas requirements, and therefore, a large amount of foreign exchange goes on import of Liquefied Natural Gas (LNG) in order to meet the energy demands of the country. A total of 26.33 BCM of LNG was imported for fiscal year 2017-18 with an approximate 140% increase from 2007-08 when the total imports were 10.93 BCM. 24.69 BCM of LNG valued at $5.95 billion (Rs. 40,813 crore) was imported for FY 2016-17. Till two years ago, the country depended solely on Qatar for long-term supplies of LNG, and started importing from Australia from 2016 onwards. This year, a new deal was struck with US as well as Russia for importing LNG, due to competitive pricing.
18. Government Initiatives in Gas Sector. To have a gas based-economy and enhance the share of gas in the energy basket to 15% by 2030, few of the ambitious initiatives taken by the Government are as enumerated below:-
(a) National Gas Grid (Pradhan Mantri Urja Ganga). Development of additional 15,000 km of gas pipeline network to connect eastern part of the country to the natural gas grid, which at present, predominantly connects the western, northern and south-eastern gas markets with major gas sources.
(b) City Gas Distribution (CGD) Network. The Government has plans to increase the Piped Line Gas connections from existing 28 lakh to 1 crore, in order to reduce pollution in the cities. At present, the CGD companies are developing networks to supply clean cooking fuel in the form of PNG to about 40 lakh homes in the country. The expansion plans of the CGD networks across the country are being synchronised with the gas availability and pipeline connectivity for optimum utilisation.
(c) Promotion of CNG in Transportation Sector. The Government is also promoting the usages of environment friendly transportation fuel, i.e. CNG by expanding the coverage of City Gas Distribution (CGD) network in the country.
Coal vs Natural Gas – India’s Energy Perspective
19. Historically, India has relied on coal to power its electricity sector, liquid fuels as feedstock and oil for its transport sector. The largest consumers of coal in India are electricity generation, steel, cement, and sponge iron industries, whereas natural gas finds its primary usage in fertiliser industries, power plants and city gas distribution. In 2016, coal formed 57% of the primary energy consumption in the country, followed by oil and gas at 29% and 6% respectively. There is a constant pressure on the Government to improve the quality of life for India’s 1.3 billion people, most importantly of the estimated 240 million that still remain today without access to electricity. As a result, India’s power generation sector faces the challenge of adding capacity expeditiously in the long term. However, there needs to be environment consciousness in generation. All the future energy policies listed in the soon to be published National Energy Policy (NEP) by Niti Aayog has been planned based on this fundamental requirement.
20. The Government expects the share of natural gas in the energy mix of India to be 20% by 2025, as stated by the Petroleum and Natural Gas Regulatory Board (PNGRB) in its Vision 2030 document published in May 13. However, IEA in its 2015 report about India’s energy outlook, projected that the share of natural gas will only increase marginally to 8% in 2040, against a global average of 25%. Therefore, it is extremely difficult and important for the country to ensure a well-managed expansion of energy supply and striking the correct balance in the energy mix.
21. Coal/ Gas Fired Thermal Plants. With most of the electricity in India being thermally generated in power stations in comparison to nuclear and renewable, there is undoubtedly a very high dependency on these two fossil fuels for power generation. As per the report of the Central Electricity Authority, coal (60.13%) and natural gas (7.95%) have a aggregate share of 68.08% in the total installed power station capacity in India as on Mar 17. On one hand, the country is bestowed with sufficient coal reserves, on the other hand, the quality of coal held in these reserves is not commensurate to the requirements of the country in various process industries due to its lower calorific value and higher ash contents, forcing the country to import. Added to this, the even larger concerns of environmental pollution and increasing CO2 footprint that is plaguing the country, due to usage of coal.
22. While fertilizer industries are presently the largest consumer of natural gas at 31%, the demand from the power sector (presently 28%) is expected to increase in future and would be driven, not only by the rising cost of imported coal and associated environmental concerns but also by increased domestic gas supply and power sector reforms. In the case of natural gas, the import bills are still high but the ill effects are much lesser compared to coal.
23. Future of Thermal Power Plants in India. Currently, India has 196 GW and 27 GW of coal and natural gas thermal plants respectively and about 50 GW of hydro and nuclear plants. About 51 GW thermal plants are stranded or stressed because of non-availability of fuel, lack of Power Purchase Agreements (PPA) or under-recovery. While another 23 GW of under-construction projects are likely to be online in the coming five years. All future expansion plans or management of the existing thermal power plants would be undertaken, keeping in mind the environmental concerns as well as the change in global trends towards renewable energy.
24. Another glaring observation is that India’s thermal power sector is heavily dependent on freshwater for cooling and has been suffering from water shortages, losing a substantial part of its generation growth every year since 2013. Fourteen of India’s top 20 largest thermal power utility companies have experienced water shortage, which has led to related disruptions at least once between 2013 and 2016, losing more than $1.4 billion in total potential revenue. Therefore, the government should keep working toward meeting its ambitious renewable goals and prioritize solar PV and wind projects when possible to scale up power production while reducing the power sector’s exposure to water-related risks.
25. Natural Gas vs Coal – Benefits and Risks. Undoubtedly, high efficiency natural gas-fired power stations can produce up to 70% lower greenhouse gas emissions than existing brown coal-fired generators, and less than half the greenhouse gas emissions of the latest technology black coal-fired power stations. CO2 emissions from Natural Gas Combined Cycle (NGCC) plants are reduced relative to those produced by burning coal given the same power output because of the higher heat content of natural gas, the lower carbon intensity of gas relative to coal, and the higher overall efficiency of the NGCC plant relative to a coal-fired plant. But methane which is a super-potent greenhouse gas that is leaked and vented from the fossil gas supply chain, can seriously undermine the emissions reductions of burning fossil gas in place of coal.
26. In addition, further augmentation of natural gas in the energy mix requires additional onshore facilities which are quiet expensive to build and require a huge investment. At present, India has just four LNG terminals at Dahej, Kochi, Hazira and Dabhol, all in the west coast with a total capacity of 30 Million Metric Tonne Per Annum (MMPTA). The anticipated expansion in LNG imports will be matched by a similar jump in regasification capacity as a result of commitments made in recent years. India’s LNG processing capacity is set to reach 45 MMPTA by 2021, due to new terminals in the pipeline, including on the east coast.
27. India’s Commitment Post Ratifying Paris Agreement. Being responsible for 7% of the global CO2 emissions (3rd highest after China ; US) due to increased use of coal in thermal power stations and other industries, the deployment of coal in the country as the preferred energy solution for mass development needs a deliberate afterthought. Of the 50 urban areas with the worst ambient air pollution, 22 are in India, according to World Health Organization database of 2016. Therefore, after having ratified the Paris Agreement on climate change on 02 Oct 16, India is now globally accountable towards minimising the adverse environmental impact of increased CO2 emissions. India’s Nationally Determined Contributions (NDCs), as submitted to the United Nations Framework Convention on Climate Change (UNFCCC) under Paris Climate Agreement, include achieving about 40% cumulative electric power installed capacity from non-fossil fuel based energy resources by 2030. The Government has taken various initiatives, including setting up of National Solar Mission and is confident of achieving the target of 175 GW of renewable energy capacity by 2022 for increasing share of carbon free energy in the energy mix.
28. In the evolving world energy scenario, due to the pressing requirement of shifting towards cleaner energy technologies like solar and wind among others, it is highly possible that India’s vast coal reserves could remain unused in distant future. There has been no fresh proposals by the Government to set up coal-based power plant in the last few years, thus resounding this critical requirement. But till such time the roadmaps are well established, coal will continue to remain the backbone of India’s energy mix towards ensuring long-term energy security. While it will the endeavour of the government to increase the share of the renewables, the gas-based power plants will be utilised for grid stability with the growth of renewable energy generation.
29. As renewable energy is not firm in nature, demand from renewable energy has to be viewed in the context of balancing the grid and providing reliable 24×7 power to consumers. Even though renewables may have larger share in the energy mix in future, coal will continue to play its prominent role in new steel making and has got no alternatives. As far as natural gas is concerned, its production is expected to double to 72 BCM in four years through 2022 as claimed by the oil ministry. With the continuous focus on shifting towards a gas-based economy, the utility of natural gas in all other industries like fertilisers, refineries, transport etc. is expected to surge as and when more LNG terminals are established, along with increased domestic production.
30. Climate change is a real and serious issue. NASA scientists reported in Nov 15 that human-made CO2 continues to increase above levels not seen in hundreds of thousands of years. Currently, about half of the CO2 released from the burning of fossil fuels is not absorbed by vegetation and the oceans and remains in the atmosphere. But there are great examples from where lessons can be learnt. For instance, the biggest decline in CO2 emissions came from US which has registered the third consecutive year of decline. While coal-to-gas switching played a major role in reducing emissions in previous years, the drop in 2016 was the result of higher renewables-based electricity generation and a decline in electricity demand. Few of the steps that the Indian Government should forcibly ensure are:-
(a) The aggravated air quality as a result of poor thermal efficiency of the Indian coal is due to its high ash content and low calorific value. New generation technologies should be incorporated both in the coal mining as well as the thermal industries, in order to bring down the particulates as well as gaseous pollutants.
(b) There are already existing industrial scale Carbon Capture and Storage (CCS) projects which aim at capturing waste CO2 from large point sources such as fossil fuel power plants and transporting it to a storage site, and depositing it where it will not enter the atmosphere, normally an underground geological formation. India should look at exploring this avenue as a measure to curb CO2 emissions.
(c) All underutilised coal and natural gas-fired thermal stations should be made capable to run at peak output, whenever there is higher demand.
(d) Older plants that guzzle fuel and emit large volumes of fumes, especially close to cities, need to be phased out.
(e) Since there is no alternate to coal in new steel making, avenues in recycling of steel to be increased manifold to reduce dependency on coal.
31. Renewable energy is obviously very compelling due to its long-term low-cost and environmental benefits. Climate goals require the power sector to be decarbonized by mid-century, which means usage of fossil fuels, including both coal and natural gas, must be phased out and not increased. Therefore, it will be a constant challenge for the country to ensure energy security and at the same time, contribute effectively towards cleaner and greener future with little or no pollution.