The Center for Science and Technology (CSE), which was instrumental in getting CNG mandated as a fuel of choice for public vehicles in Indian cities, has called the government’s recent move to increase gas prices “stupid.”
In an editorial in its flagship publication, Sunita Narain, head of CSE, said the decision to increase the price of natural gas was short sighted and based on wrong premises.
Natural gas was widely expected to give a fillip to the production of cleaner electricity in India, with Reliance Industries expected to help India more than double its production to about 180 million cubic meters per day (mmscmd). Many new power plants were set up over the past 4 to 6 years in expectation that RIL would produce about 80 million cubic meters per day.
However, the KG D-6 block of RIL has badly disappointed both the owners of those power plants and investors, as the block is now producing less than 15 mmscd.
Narain pointed out that because of this, nearly 20,000 megawatt of power generation capacity is lying idle in India.
The capacity, if put to use, could increase India’s power production by about 15%. However, due to the lack of production from Reliance’s fields and the high cost of imported LNG (about $13-15 per thousand cubic feet or million British thermal units), the owners of these plants have chosen to idle plants instead of producing power.
Two weeks ago, the government said it is raising gas prices with effect from April. However, it has not said by how much. Speculation is rife that the new price would be in excess of $8 per mmBtu, while some have suggested it would be around $7.
Either way, Narain said gas-based power production cannot be viable at these levels.
“The fact is that if natural gas becomes so expensive that it cannot compete against coal and diesel then it will not be used… Now, even if gas is produced—and there is no guarantee that at the doubled rate Reliance will find more gas—its use in power plants will raise tariffs, rendering power unaffordable. Dirty coal will win,” she said.
She said the government was myopic in its goals with regard to increasing the price of gas. The gas prices have been increased to “encourage companies to invest in producing more.”
“Natural gas as fuel has environmental benefits, particularly when compared to burning coal for power generation or using diesel for vehicles. So when the government increases—in fact, doubles—the price of domestically produced natural gas it has far-reaching implications for air quality and public health. But these benefits do not matter at all in the price-benefit calculations.
“Government’s rather simplistic logic is that if the price is increased, Reliance Industries, which has monopoly over gas fields and, therefore, holds all the cards, will put in more money in drilling for gas and this, in turn, will mean more gas for use. Simple. But equally simply stupid,” Narain said.
Narain also worried about the knock-on effect of higher natural gas prices on the public transport system, which has been switched over from diesel to compressed natural gas in cities like Delhi to reduce pollution. She said even if Reliance Industries manages to locate more gas due to the higher profits on offer, the health effects of diesel and coal use will affect everyone.
“Now even as diesel price is gradually increased, CNG cannot compete after the latest price hike.”