Scorching heat and policy measures are fueling a surge in the use of gas-fired power in India, with imports of liquefied natural gas (LNG) expected to rise sharply over the next two years, officials and experts say of the sector.
The country’s gas-fired power generation doubled in April and May to 8.9 billion kilowatt hours (kWh) compared to the same period last year, according to Grid India data, denting electricity’s share powered by coal for the first time since the COVID-19 pandemic.
More than 75% of India’s electricity generation came from coal in 2023, while gas-fired plants have accounted for only about 2% in recent years, largely due to the high cost of gas compared to coal.
In May, coal’s share fell to 74%, compared to 75.2% in the same month last year, while gas’ share nearly doubled to 3.1% from 1.6%.
An emergency clause invoked to force the operation of idle gas-fired power plants to avoid power cuts during the 43-day federal election that ended last week also pushed gas use, industry officials said, given that power outages have historically been a key election issue.
“The current growth in Indian electricity demand suggests that the growing need for greater (natural gas) availability and flexibility will remain an issue in the coming years,” said Joachim Moxon, LNG analyst at ICIS.
LNG IMPORTS INCREASING
India’s gas-fired power generation is expected to grow 10.5% in the fiscal year ending March 2025, following growth of 35% in the previous year.
To meet that demand, the price-sensitive buyer’s LNG imports surged in May, reaching their highest levels since October 2020, according to data from analytics firms LSEG and Kpler, even as global prices rose by five times compared to the lows of 2020, hit by the pandemic.
Demand for LNG in India, the world’s fourth-largest importer of the fuel, is set to rise 19% in 2024, with imports expected to reach more than 28 million metric tonnes in 2025, up from 22.1 million tonnes in 2023 , according to ICIS.
“India’s LNG imports will continue to be driven by the energy sector at least over the next two years,” said Victor Vanya, director of Indian energy analytics firm EMA Solutions.
Industry officials and analysts have argued that allocating more of the gas produced domestically could allow gas-fired generation to better compete with coal, but in recent years most local gas has been earmarked to other sectors.
“Insufficient local gas production is increasingly being used to supply city gas grids and fertilizer companies, and electricity generators will have to import,” said an executive at a large Indian gas exchange, who declined to be named because he was not authorized to speak to the media.
Despite being cheaper, solar and wind are harder to control and predict than gas, while coal and nuclear power cannot be scaled up or down as quickly in response to sudden spikes or drops in demand.
Gas flexibility and a 2022 federal rule that provided a policy framework for operating more expensive gas-fired power plants have helped boost use of the fuel, industry officials and experts said.
“Until we have optimal large-scale battery storage solutions in India, peaking requirements, such as ramping up and ramping down, will be met by thermal sources, including natural gas,” said Sadek Wahba, managing partner of Miami-based private equity firm I Squared Capital, which has invested billions of dollars in natural gas and renewable energy in India.
