Welcome to this weekend’s edition of Lights On, a newsletter that brings you the key stories and exclusive intel on energy and climate change in South Asia.
If you are not a subscriber, you can sign up below, for free, or you can support my work by purchasing a membership:
This is the first of a two part exploration of the complex role of fossil fuels in the energy transition and the different - and at times opposing - schools of thought when it comes to phasing them down. Today we hear from Shruti Sharma, energy specialist at the think tank International Institute for Sustainable Development (IISD), and author of a new study on international public financing for natural gas expansion in the Global South. Sharma argues that for as long as finance flows towards natural gas, particularly in developing countries, the world will fail to achieve meaningful climate action.
Lights On: Your report out this week calls out financial institutions for supporting natural gas. It finds that gas projects received a yearly average of nearly $16 billion in international public finance per year from 2017 to 2019, more than any other source of energy and four times as much as wind or solar. Why is this a problem?
Shruti Sharma: This global movement towards using natural gas is not consistent with the Paris goals. The IPCC report warns us that by 2040 we should be using half of the natural gas we're using right now, but if we keep on with the current trajectory, we're going to be doubling the amount instead of reducing it.
Because the Global South is going to be most impacted by climate change, there is shortage of finance and more poor people live here, the urgency of this situation puts a spotlight on the fact that renewable, cleaner alternatives exist in almost all the sectors where gas is being used. There is no reason to lock in gas based infrastructure, particularly in the Global South.
How does this situation pan out in India?
In India there is this big policy push towards creating a gas based economy. The Ministry of Petroleum announced that they want to increase the share of natural gas in the energy mix from the current 6 percent to 15 percent by 2030. And with that comes a significant push towards an infrastructure that uses more gas.
That brings us to the conversation of where India is consuming and where India is producing. In the early 2000s there was this sudden prospect that we may be sitting on huge gas reserves in India, and there was a lot of exploration, new policies on gas exploration and licensing, that all locked us into using natural gas for power. So we constructed power plants based on gas, which are now stranded. And we locked in the fertiliser [industry], which is now completely reliant on gas. These big switches were based on the assumption that we were going to be producing our own natural gas, but those reserves did not generate the supply that we hoped to see.
Cut to the present...
Only 45 percent of our gas consumption is met through domestic supply, and 55 percent of the supplies comes through LNG imports, of which about 40 percent is from Qatar. Essentially if we want to move towards a gas based economy, all we're doing is reducing our import dependence on oil and increasing our import dependence on natural gas. Currently, India imports about 80 percent of its crude oil, and we want to move away from the fluctuations of oil and move towards natural gas because we think that is less volatile geopolitically, and until now it has not given us price shocks. But if suddenly the world moves towards natural gas, there is no guarantee that there will not be price shocks in the future.
Can you walk me through the landscape of India's natural gas? Which sectors are most dependent on it?
Most of our consumption of natural gas goes towards fertiliser plants. And the next big chunk of gas is used by the power sector. And then really small portions of it are used in road transport and other industries, medium and small enterprises. [Finally], a little bit is used in cooking, commercial, iron and steel and so on.
When we think about decarbonising the power sector, the strategy seems relatively clear: you replace fossil fuels with renewable generation, and add storage to stabilise the grid. But what happens to industries such as fertiliser production and other sectors that are harder to decarbonise?
For the fertiliser industry, the only alternative is green hydrogen, a technology which is still further away. So given that, there is very little we can do about it until we see green hydrogen as a viable and cost-competitive alternative to gas. But with power, the alternative already exists. It's cost-competitive. Another argument that [the supporters of natural gas] always use with the power sector is that it's used to bundle with renewables, to manage the peaking. But even then, with storage costs coming down very quickly, it does not make sense to invest in gas-based power plants anymore. From inception to running the power plant will be five to six years, by which time we will see a steep fall in storage costs. Currently, our gas-based power plants are [quickly becoming] stranded assets - we are looking at 25GW of nearly-stranded assets.
Within this landscape, where do you think India is getting it wrong?
Gas power plants are just 7 percent of the total installed capacity. The major push towards gas, which is more challenging, is where India is building a parallel infrastructure in transport and in cooking. For cooking, they are moving urban centres onto piped gas to free up LPG cylinders for rural India.
There is no vision of what is going to happen if they're investing in city gas grids, to push urban households towards moving from one fossil fuel to another for cooking from LPG to natural gas, and investing in a new grid infrastructure which is going to come at cost. We already have an existing electricity-based grid, and while I'm not contesting that there are cultural adaptations - we are used to open-flame cooking - we still see no conversation on electricity-based cooking.
The other issue is transport. Here, India is building parallel systems between natural gas and EV (electric vehicles). So there is this big plan to have CNG [compressed natural gas] stations all over cities, along with EV charging infrastructure. But this also makes gas a risky investment, because there is no horizon of when it's going to be phased out, and EV are just going to take over. There is absolute confusion over what is going to happen.
Can you share your personal opinion on how to navigate a potential transition away from natural gas? What are the practical challenges, beyond the optimistic models?
I think the easy wins are moving MSME [Micro, Small & Medium Enterprises] and the power sector towards renewables, and there we just don't need to see gas at all. The cost-competitiveness is proven, cheaper renewable alternatives already exist. The sticking points are transport and cooking. To reach the end user they have invested in city gas grids, and it's very hard to now exit from infrastructure that has already been constructed. That is done.
And then you have the fertiliser industry which is just dependent on when green hydrogen [will become feasible]. But again, we have not planned for our gas grid to carry or be compatible with hydrogen. I am not at all sure if there is forward-looking thinking on that. It is also a new technology, which is difficult to predict, but at least there is some discussion around it.
That’s all for today! If you like what you read, please consider signing up for free or as a member: