India steps on gas as coal use for power generation slows

Power producers say the trend is likely to continue until at least September, and perhaps beyond, providing a bright spot for LNG sellers as demand elsewhere falls due to a global economic slowdown sparked by the coronavirus pandemic.

Gas consumption by power plants rose 11.7% to 104.83 million standard cubic metres per day (mmscmd) in the three months to end-June from the same period last year, data from the Central Electricity Authority (CEA) showed.

Imports accounted for 37.4% of overall gas consumption by power plants, up from 35% a year ago.

Lower spot prices are making natural gas “lucrative” for power plants, according to India’s largest gas importer Petronet LNG Ltd, which recently cancelled a tender to buy long-term LNG. 

“I do believe there is some coal switching taking place and imported coal-based power plants may not be competitive vis a vis spot LNG (consuming power plants),” Vivek Mittal, general manager for marketing at Petronet, said on a recent conference call.

India’s imports of spot gas more than doubled in the June quarter from a year ago to the highest in at least 14 quarters, while purchases under long-term contracts slumped by over a third to the lowest in the same period, a Reuters analysis of the available data showed.

The increased use of gas comes as India’s overall electricity demand is expected to fall this year for the first time in decades, with a likely fall in national coal-fired generation.

Sales at state-run Coal India, which sells most of its output to power companies, fell to the lowest level in nearly four years in the second quarter. Weaker sales could continue through end-September due to the annual monsoon, when coal demand and output typically falls and transportation is difficult.

Imports of coal by power plants also fell to the lowest level during the June quarter in at least seven years. 

Still, coal remains India’s dominant fuel for power production. More than half of India’s gas-fired plants are also shut because they are not economically viable, which power producers attribute to high taxes and transportation costs.

Gas consumption increased mainly due to higher consumption by companies on India’s west coast, particularly the state of Gujarat, home to some of the country’s biggest LNG import plants.

The state, which is close to producer countries such as Qatar, also has a better gas transportation network, and is relatively far from coal mines, making gas-fired power production relatively cheaper, power producers say.

Gujarat-based private firms such as Torrent Power and utilities run by the state government accounted for nearly all LNG imports by power companies, according to the CEA.

“We expect global LNG prices to be at current levels for the next two years due to low global demand and gas consumption by power plants in Gujarat to increase,” an executive from a large Indian power producer said.

“But only plants on the west coast will be able to make use of the price competitiveness with coal.”