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Gas Sector Dichotomy | Pushing for more use, while subsidies rise and infrastructure remains unused

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The vicious cycle of high price/low supply followed by low demand has resulted in heavily-underutilised gas infrastructure

India’s attraction for natural gas is burning bright again. The government reiterated its target of raising natural gas’ share in the energy mix to 15 percent, six years after its initial announcement. Not much has changed on the demand front — gas was 6 percent of the energy mix in 2016, rising to 6.3 percent today, despite an expanding gas grid, and city gas distribution (CGD) network. On the other hand, prices have skyrocketed globally. As such, the push for more gas use does not bode well for the economy.

Low Price Competitiveness

Gas’ poor price competitiveness has led to its static energy mix share.

The gas price surge since October 2021 has worsened the situation. The Japan Korea Marker (JKM), a benchmark for Asian spot liquefied natural gas (LNG) prices, increased by 373 percent from January 2021 to July 2022, while domestic gas prices soared 240 percent for regular fields between April 2021 and 2022.

Ongoing supply shortages will further raise prices. Russian company Gazprom’s recent supply cut ahead of the European winter season led to gas supply rationing for India’s industrial use, and fertiliser sector.

The switch to alternative fuels is also affecting demandGas consumption fell by 2.5 percent in the first quarter of 2022-23 on a year-on-year basis, while that of petroleum products increased 16.8 percent. In April and May, gas consumption by the power, refinery, and petrochemicals sectors declined. The CGD and fertiliser sectors’ consumption increased marginally.

The CGD sector can pass through increases to consumers. The compressed natural gas (CNG) and piped natural gas (PNG) rates, for instance, increased to Rs 80/kg and Rs 48.5/standard cubic meter (scm) in July, respectively, from Rs 66/kg and Rs 39.5/scm in January.

These rates will go up even further as the price of blended domestic and imported gas supplied to the CGD sector increased 18 percent earlier this month. Gas’ price advantage over other fuels is clearly over.

Low Demand, Underutilised Infrastructure

The vicious cycle of high price/low supply followed by low demand has resulted in heavily-underutilised gas infrastructure.

Coal and renewables have already pipped gas-based power production due to limited domestic resources, and imported rates going through the roof.

India has more than 14 gigawatts (GW) of stranded gas-based power plants, while the remaining operate below efficiency. LNG terminal utilisation rates topped at 64 percent in the last three years, indicating vastly underused expensive infrastructure.

Similarly, despite a ‘no cut’ priority, the CGD sector has received less gas than it needed, resulting in the distribution network’s lower utilisation. Last fiscal, the CGD sector saw a 15 percent shortfall in domestic gas supply.

Increased Subsidy Burden

High prices have also led to many direct and indirect subsidies for gas-dependent sectors. High gas prices increased fertiliser subsidies, which crossed Rs1 trillion two years ago. The subsidy could touch Rs 2 trillion in the ongoing fiscal as gas prices continue to rise.

Further, the government is reviving liquefied petroleum gas (LPG) subsidies to counter rising prices and falling consumption. A Rs200/cylinder ($2.5/cylinder) LPG subsidy will cost the exchequer Rs 40,000 crore ($5.1bn) in FY2022/23, including under-recoveries for the last fiscal.

This subsidy would further dent PNG’s price competitiveness. PNG is already costlier than LPG. Annual consumption for LPG generally averages at eight cylinders while PNG is 170 scm. The monthly average cost at the ongoing rates of Rs 1,052 per cylinder ($13.4/cylinder) for LPG and Rs 52.5/scm ($0.66/scm) for PNG works out to be Rs 694 for LPG and Rs 740 for PNG.

India Must Make The Right Bets

Softening of gas prices is not in sight. Global futures indicate that prices will remain upwards of $35/MMBtu till 2023 and could touch $50/MMBtu this winter. This exposes India to energy security and balance of payment risks.

Globally, countries such as Germany and the Netherlands are cutting their gas dependence by shifting to electric heat pumps, gas from biomass for boilers, and exploring hydrogen as an option.

India must learn and evaluate its strategy, especially with the COP26 announcement of meeting 50 percent energy requirements from renewable energy by 2030. Perhaps, the gas contribution can be use-specific till new technologies scale. For instance, gas-based power plants could help balance the grid until large-scale battery storage is viable.

The government must intensify efforts for faster adoption of nascent technologies, such as green hydrogen for the fertiliser sector and biogas for the transport sector. India has an opportunity to invest in renewables to meet the 450GW target by 2030 instead of adding more gas infrastructure that could find itself stranded.

Purva Jain is energy analyst, Institute for Energy Economics and Financial Analysis, India. Views are personal, and do not represent the stand of this publication.

Reliance Industries to acquire 79.4% stake in US-based SenseHawk for $32 mn

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California-based SenseHawk, which was founded in 2018, is an early-stage developer of software-based management tools for the solar energy generation industry

Reliance Industries

 has acquired a majority stake of 79.4 per cent in US-based SenseHawk Inc through primary infusion and secondary purchase, for $ 32million, the company said in a  filing.

California-based SenseHawk, which was founded in 2018, is an early-stage developer of software-based management tools for the  generation industry. SenseHawk helps accelerate solar projects from planning to production by helping  streamline processes and use automation. It provides a seamless solar digital platform to manage the end-to-end solar asset lifecycle, the  filing said.

Chairman and Managing Director of  Mukesh Ambani said, “We welcome SenseHawk and its dynamic team to our family. RIL is committed to revolutionize the  sector and has a vision to enable 100 GW of  by 2030. In collaboration with SenseHawk, we will drive down costs, enhance productivity and improve on-time performance to deliver the lowest LCoE for solar projects globally and make  the go-to source of power in lockstep with our vision for solar energy. It is a very exciting technology platform and I am confident that, with RIL’s support, SenseHawk will grow multifold.”
Also Read: Reliance aims to double its value in 5 years as it gets future-ready

The turnover of SenseHawk for FY2022, FY2021 and FY2020 was US$ 2,326,369, US$ 1,165,926, and US$ 1,292,063 respectively., according to the filing by .

Sensehawk, along with the other investments of the Company in New Energy, will be synergistic and create unique solutions with higher value to customers. The objects and effects of the aforesaid  are explained in the media release dated September 5, 2022 already filed by the Company on the subject. The  does not fall within the related party transactions and none of RIL’s promoter/ promoter group/group  have any interest in the above entities, the release added.

Commenting on the partnership, Swarup Mavanoor, CEO and Co-Founder, SenseHawk, said, “Rahul Sankhe, Karthik Mekala, Saideep Talari, Viral Patel and I collaborated with a vision to impact all of the processes in the solar lifecycle. We are delighted with the confidence that RIL has demonstrated in us with this investment. The SenseHawk team foresees strategic value in working with RIL, as one of the largest global infrastructure corporations, and look forward to this next phase in our growth.”

The transaction is subject to certain regulatory and other customary closing conditions and is expected to complete before end 2022.

Covington & Burling LLP and Khaitan & Co. acted as the legal advisors and Deloitte as the accounting and tax advisor to RIL on this transaction.

The CPEC presents more chinks in China’s BRI ambitions

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China is increasingly bitter about the multi-pronged attacks on its projects, and personnel across Pakistan. Popular mood in Pakistan is increasingly tilting against the CPEC due to the high cost of loans, and the resultant debt-trap

The China Pakistan Economic Corridor (CPEC) has been scrapped. (File image)

In what can be seen as a blow to its ambitions, on August 19 Beijing approved Islamabad’s decision to scrap the China Pakistan Economic Corridor (CPEC) Authority. The $60-billion CPEC is part of China’s ambitious Belt and Road Initiative (BRI) to link the nations around the world through its road, rail and seaways. The CPEC has been marred with problems since its inception in 2013, particularly for India has the network passes through Indian territory occupied by its two neighbours.

Pakistan may have justified the decision to scrap the CPEC on the pretext of fast-tracking several projects, but that doesn’t hide the widening differences between the two all-weather friends over the project’s success. The slow pace of progress in addition to the rising resentment against Chinese projects and men stationed in Pakistan seem to have aided the decision. The scrapping of the CPEC authority can be seen as a reflection of the resentment and tough times ahead for the BRI elsewhere in the world.

When the BRI was launched with great fanfare by Chinese President Xi Jinping after he came to power in 2013, the CPEC was advertised as its flagship project. How come then it is getting embroiled in polemics? For quite some time, there has been vocal opposition to the CPEC-related projects in Balochistan. In particular, the local population is peeved at the hyper-marketed Gwadar Port, the lack of economic growth, and the absence of job opportunities.

Elsewhere too in Pakistan, the CPEC projects are facing tough times. After the Karachi attack on Chinese nationals in May, China is increasingly bitter about the multi-pronged attacks on its projects, and personnel. While Pakistan has deployed more than 15,000 military personnel in protecting the CPEC projects, China is less than confidant about these security assurances. Popular mood in Pakistan is increasingly tilting against the CPEC due to the high cost of loans, and the resultant debt-trap. An Asian Development Bank report in February recommended immediate structural reforms so as to unleash the potential of private sector along the CPEC pathway since the CPEC itself was not a sufficient condition to improve Pakistan’s economy.

Some policy changes on the CPEC, including the authority, were expected with the change of government in April. Apparently, the CPEC Authority was formed in 2019 to expedite different projects under the CPEC. Instead, it has been bogged down in controversies, corruption allegations, and wastage of resources. Within three years, it was perceived as a parallel power centre, challenging the authority of federal ministries.

Pakistan’s new government blamed the CPEC Authority for not bringing any investment during its existence. Many projects have not taken off in last three years, and some were being shelved. It is now debatable if all the projects as envisaged in the CPEC blueprint will take off.

What is true of CPEC in Pakistan, is also true of BRI offshoots elsewhere. For instance, only recently, Nepal decided to handover nearly $2.4 billion-worth of hydropower projects to India that were initially given to China. Some of these projects were part of the BRI.

The fact is that China is now perceived by many of its BRI partner countries as a neo-colonial power. The COVID-19 pandemic, and the ensuing economic slowdown has weakened Beijing’s economic prowess—but more damaging is that it has created a negative sentiments against China and its ways across many nations. China’s grand strategy of using the BRI as a pathway to alternative international economic order is now muted with more and more erstwhile partners walking away.

Problems aside, there are reasons to believe that China would still handhold the CPEC and not let it fail. First, Beijing has already invested a huge amount of money into several projects under the CPEC. A pull-out or even partial withdrawal may sound alarm bells in other BRI projects, and may widen doubts about China’s funding capacities.

Second, China perceives the CPEC essentially in strategic terms since this would allow the shortest land route to West Asia via Gwadar. The economics, at least in this case, gets subsumed under the rubric of larger strategic goals. The likes of Gwadar Port and other important projects under the CPEC may still run through the course. Third, Pakistan has been a close ally of China for decades. If the CPEC is allowed to suffocate, the so-called Sino-Pak axis would emerge as a farcical arrangement. China would surely want Pakistan to remain its brand ambassador to fashion out the BRI landscape in other countries.

Therefore, notwithstanding the manifold problems in the CPEC, China would try to run through all the projects planned out in different phases of the project. Whether that is possible along with vital domestic support in Pakistan, would be known only in due course.

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