Role of natural gas in inter fuel substitution possibilities in India

Abstract

This study seeks to evaluate the role of Natural Gas in the Indian Economy by looking into the various dimensions of the Natural Gas sector. Natural gas is being touted as the fuel of21st century. Greenhouse emissions have become a big issue in international politics and developed countries are forcing the developing countries like India to cut down their emission levels. Kyoto Protocol is going to be one of the biggest challenges for the India incoming days and sooner or later India has to accept the international guidelines. But for an economy growing at 8% per annum it will be very difficult to reduce the emission level with so much dependence on the conventional fuel i.e. crude oil. So it becomes essential to shift from the dependence on crude oil to another fuel which is cleaner one. One can say that India should focus on unconventional energy sources such as solar energy, wind energy, hydro power etc., but with available technology and resources required, large scale substitution of conventional fuel by unconventional energy sources is not feasible in next couple of years. Further, India imports 75% of its crude oil requirement and crude oil prices are rising sharply in last few years. In 2008 crude oil prices almost touched $150/Barrel. To the best of India s fortune, world economy entered into recession and crude prices slumped to the$40/Barrel and then recently it stabilised in the range of $60-$80/Barrel. One can understand that what would have been impact on Indian economy if the prices remained at$150/Barrel. It s high time for Indian policy makers to think about the severe implication of dependence of Indian economy on imported crude. Perhaps, Indian policy makers did not learn the lessons from the India s balance of payment problem in 1990 due to surge in crude oil prices. The objective of this study was to explore the potential of natural gas as a substitute of conventional petroleum fuels in transport sector in India. The study also tried to assess the possible impact of large scale substitution of conventional petroleum powered vehicles with natural gas on India s import bill. Currently 30 % of the imported crude oil is used for transport sector and significant chunk of that is being consumed in the urban India. Many countries have successfully converted the petrol and diesel driven vehicles into a natural gas driven one for different reason ranging from pollution control to cheap cost of domestic natural gas. In India, Natural gas as a transport fuel hasn t really picked up except at Delhi and Mumbai. In this study, both primary as well secondary data was collected. Secondary data w.r.t. GDP, Population, Price of natural gas were used to derive an empirical equation for finding out the factor influencing the demand of natural gas in the country. The regression analysis identified GDP per capita and price ratio of natural gas and petroleum products as two independent factors influencing the demand of natural gas in the country, which highlighted the fact that with increase in income level demand for natural gas will also increase and as long as price of natural gas is lower than the petroleum products demand for natural gas will keep on increasing. This increasing demand of gas will help the acceptance of natural gas as preferred alternate fuel to conventional petroleum products in transportation sector in country. Primary data collected from the consumers of CNG, Diesel, Petrol and LPG in transport sector and data was analysed using the Analytical Hierarchy Process (AHP). For the same, EXPERT CHOICE 11.5 software was used. Result of data analysis proved that, CNG is the most preferred fuel on six selected parameters among all available fuels among retail consumers in Delhi. Finally, to identify the challenges of city gas distribution sector in India, six industry experts were interviewed. Based on that it was found that major challenges for the enhanced use of natural gas as substitute of conventional transport fuel are less availability of natural gas in country, inadequate natural gas pipeline and CGD network infrastructure, role of government and demand uncertainty. Based on the analysis of interviews with experts, suitable recommendations were made to mitigate these challenges. This study highlighted the importance of natural gas in India s overall energy sector as fuel and shown that by promoting use of natural gas in transport sector especially in urban areas significant savings can be generated and import dependency of country for energy requirement can be reduced.