Unraveling the Natural Gas Industry with Mr. Shikhar Gautam | Alumnus, IIM Kashipur

Mr. Shikar Gautam, Alumnus of IIM Kashipur who has completed his PGP in the year 2017 is currently holding the position of Senior officer at GAIL (India) Limited. The Alumni Relations Committee of IIM Kashipur has served as a bridge to beget valuable insights about the Natural Gas Industry from our erudite alumnus. This article covers the holistic perspectives on various questions dealing with the Natural Gas Industry through the lens of GAIL (India) Limited.

Q. Why is there so much accentuation around a gas-based economy?

The government released Natural Gas Marketing Reforms in October 2020 to work in that direction, how will it boost natural gas marketing and increase domestic production, while ensuring a fair competitive market.

India comprises 17.7 % of the world population but only consumes about 5.8% of the total energy. As per the World Bank, the world average per capita energy consumption is 3 times over India’s energy consumption. Countries like the United States, China with 10X per capita energy consumption as compared to India are still adding energy capacities to their existing portfolio and are shifting towards cleaner energy alternatives.

India’s energy consumption has doubled since 2000 yet around 240 million people remain without electricity. To cater to and satisfy the energy requirements of the country, India’s power system needs to quadruple in size by 2040 and focus on the choice of fuel it uses. To fulfill the rising demand and restrict the use of polluting fuels like coal and oil, India needs to plan and strategize the right energy mix which can sustain the changing environment. In 2018, global wind power capacity grew 9.6% and solar power accounted for about 2% of global power requirements.

India’s endeavor towards a Gas Based Economy and natural gas has been identified as a sustainable option to create a balanced Indian energy basket. Hydro and nuclear plants are usually operated at 100 % capacity therefore it is not feasible and recommended to operate them under capacity or to shut them on/off frequently. Due to the unrivaled capacity of gas-fired power plants to ramp up and down quickly, gas-fired power generators are much more adept at adjusting output based on residual demand resulting from wind and solar power than other hydrocarbons such as coal. Accordingly, natural gas electricity generation is increasingly employed to support wind power as the latter continues to grow. As the market share of wind power increases, the amount of fuel needed to provide backup to wind will also increase. This means that natural gas power, wind, and solar power are likely to be tightly linked in the short-to-medium term.

By 2040, Electric Vehicles which are thought to be competing against Natural Gas Vehicles would comprise 55% of new car sales and 33% of the global car fleet. Electrified buses and cars would displace a combined 7.3 million barrels per day of transportation by 2040. In order to shift to a cleaner energy system and cater to such a volume of electricity requirement, it can be deduced that the EV charging stations would require electricity from cleaner sources keeping in mind the emissions from the use of coal in electricity generation. With the natural gas infrastructure in place, the future electricity requirements can be fulfilled by Natural Gas through large power plants as well as small captive plants at commercial parks/ residential complexes where natural gas can be directly used at the point of electricity consumption. A pilot plant of 10 MW capacity is already operational and supplies electricity to DLF’s Cyber City, a major commercial centre housing multinational corporations and leading business house.

Natural Gas Marketing Reforms in October 2020:

Government now also allows pricing freedom for new and upcoming fields to domestic producers as the existing domestic pricing formula is making natural gas production economically unviable. The system was based on the crude price indices of the US, Europe, Canada, and Russia. This system was becoming irrelevant day by day and needed to be scrapped.

The objective of the policy is to prescribe the standard procedure to discover the market price of gas to be sold in the market by gas producers, through a transparent and competitive process, permit Affiliates to participate in the bidding process for the sale of gas, and allow marketing freedom to certain Field Development Plans (FDPs) where Production Sharing Contracts already provide pricing freedom.

Oil Secretary recently revealed that govt. is planning some more reforms in the upstream sector to make it attractive for investors

Q. Can you please shed some light on the recent GAIL project of the Kochi-Mangalore which was virtually inaugurated by PM Narendra Modi?

The 444-km long natural gas pipeline was launched in 2009 at an estimated cost of Rs 2,915 crore and was to be commissioned in 2014. But opposition on safety and commercial grounds wherein the land price was the main hurdle, both from political parties and the public, ensuring that the project lingered on. This led to the project cost nearly doubling to over Rs 5,750 crore.

Situations like these are common in projects which involve dependency on external agencies for their completion.

Some common problems include:

• Difficulty in route planning because of the growing population
• Farmers demanding higher land compensation, route diversion, etc.
• Records of ownership and land possession certificates are not easily available
• Inadequate Mobilization of construction equipment, Specialized equipment
• Like in this case: Resistances of farmers, Farmer bodies — instances of associations, PIL, litigations, etc.

GAIL was ready to complete the project this August, but a 540-meter stretch across the Chandragiri River became a nightmare. The project crosses as many as 96 waterbodies south of the Chandragiri River. So as a way out, GAIL reduced the diameter of the pipe to a fourth — from 24 inches to just 6 inches now. But this is only a temporary arrangement and the work to lay the 24-inch pipe will resume soon

Today the pipeline supplies 3.8 million cubic metres of gas every day to industrial and residential customers in Kochi and is set to cross 4 million cubic metres soon in the city itself, while Mangalore has a potential of 2.5 million cubic metres per day

With the commissioning of the pipeline, gas demand in the state will touch 80–90 million cubic metres per annum from 60 million cubic metres now.

The pipeline is also a big boost to the struggling Kochi LNT Terminal of Petronet which has a capacity of 5 million tonne annually but 90 percent of capacity has been idling due to the delay in completing the Kochi-Mangalore pipeline and with the commissioning the capacity utilization of the LNG terminal will go up to 25–30 percent.

Apart from huge environmental gains, the state can also gain monetarily as it can get up to Rs 1,000 crore by way of taxes alone. Supplying to the Kochi region alone helps the state earn over Rs 340 crore annually in tax revenue.

Q. GAIL won the Leader Award at Frost & Sullivan and TERI’s Sustainability 4.0 Awards 2020. Where does sustainability stand for GAIL, especially in an industry where resources can be easily exploited.

Talking about sustainability from GAIL’s point of view. GAIL has engraved the word “Environmental Responsibility” in the company’s vision statement.

GAIL has a dedicated Sustainability department working towards a Sustainable Future.

The company has been disclosing environmental, economic, and social performance since 2011 through annual sustainability reports. Through sustainability reporting, the company analyses its strategy, set goals and targets, measure and advance performance, and ultimately develop a sustainable business model that adds value to the society

Along with Frost & Sullivan and TERI’s Sustainability 4.0 Award, GAIL also received FTSE4. Good Index series certificate in June 2020.FTSE4Good is a global sustainable investment index series, designed to identify companies that demonstrate strong Environmental, Social, and Governance (ESG) practices measured against international standards.

Apart from this, some Initiatives of GAIL towards sustainability:

• Hawa Badlo (Change the Air) is a one-of-a-kind initiative by GAIL. It is a campaign to drive behavioral changes in making our cities air pollution-free. The campaign has digitally touched more than 100 million lives, enabling people to make a direct link between their energy consumption patterns and the impact on their health and the environment. The goal is to motivate people to voluntarily switch to more economic and environmentally friendly ‘natural gas’.
• SATAT’ (Sustainable Alternative Towards Affordable Transportation) is a scheme launched by the Ministry of Petroleum and Natural Gas to promote Compressed BioGas(CBG) as an alternative, green transport fuel and is being implemented by GAIL
• THE estimated CBG Potential from waste/biomass in India is 62 MMTPA. Under SATAT, it is planned to target 25% of this potential ~ 15 MMTPA by 2024 through 5000 CBG plants (~ 8 TPD ~ 10000 SCMD). CBG shall be produced by Entrepreneurs and OMCs, GAIL along with its Associates and Joint Ventures will provide marketing tie-up to CBG Entrepreneurs

Other environmentally conscious decisions include -

• Having more than 40% of GAIL landholdings covered by green belts and water bodies across all the locations
• GAIL has carried out multiple studies to assess the potential for the installation of solar power plants at its sites pan India. Implementation of solar power is in progress at shortlisted sites.
• GAIL has also embarked upon the journey of adoption of the GreenCo Rating. This rating helps in making products, services, and operations greener.
• GAIL revised its Sustainability Policy considering the new national and international developments such as UN Sustainable Development Goals, India’s Nationally Determined Commitments among others.

When we talk about renewable energy GAIL has a portfolio of-

• 130 MW — Renewable energy portfolio (118 MW– Wind and 12.26 MW — Solar)
• 120 Sustainability projects — Investment of INR 80 crore
• Renewable energy generation– 1,76,200 MWh (Moving towards renewable energy)