GAIL in talks with Tata Steel, SAIL to spur gas demand3 min read . Updated: 18 Feb 2020, 07:44 PM IST
- The shift to gas will mean a sweeping transition in India, whose steel mills depend largely on oil and coal for energy
- For GAIL it’s crucial to find new clients as demand from its biggest customers — power plants — wanes
GAIL India Ltd., the nation’s biggest gas utility, is in talks with Indian steel mills to convince them to switch to using the less polluting fuel in an attempt to revive sales growth.
The shift to gas will mean a sweeping transition in a country that depends largely on oil and coal for energy. The New Delhi-based company is counting on the global push for factories to seek less polluting fuels to drive that change, Ashutosh Karnatak, director of projects at the state-run utility said in an interview.
For GAIL it’s crucial to find new clients as demand from its biggest customers -- power plants -- wanes. The company has the backing of Prime Minister Narendra Modi, who has set a goal to reduce the emissions intensity of the economy as well as curb the severe air pollution that chokes large swathes of the country’s urban landscape. Modi is pushing for a gas-based economy, where the fuel is seen more than doubling its share in the energy mix to 15% by 2030.
“There is a lot of pressure on these industries because of climate change and we are offering them a solution to convert to gas," Karnatak, who calls GAIL a “gas warrior," said. “Oil use can’t be wiped out, and neither can be coal. But we want gas and renewables to increasingly replace the dirty fuels."
Reaching the target would require India’s daily gas consumption to increase to 450 million standard cubic meters from about 150 million, Karnatak estimates. That’s a daunting task for a country with inadequate pipeline infrastructure and customers who are sensitive to prices.
India’s power utilities are instead using more coal. They bought a record 608 million tons of the fuel in the year ended March, 8.4% more than a year earlier, government data show, while gas use dropped.
GAIL’s revenue is poised to drop 19% in the year ending March 31, according to median estimate of seven analysts surveyed by Bloomberg. That’s the most since at least 2005, according to data complied by Bloomberg. The company’s shares rose as much as 1.1%, heading for the biggest gain in a week, at 11:41 a.m. in Mumbai.
Demand from new customers will help reverse the drop. The company is in talks with Steel Authority of India Ltd. and has approached Tata Steel Ltd. to convince them about the benefits of switching to gas, he said. Steel mills alone can consume close to a fourth of the anticipated demand.
Steelmakers and sponge iron plants used almost 30 million tons of domestic coal supplies in the year ended March, about 4% of the total shipments, according to the coal ministry. In addition, about 52 million tons of coking coal was imported by the steelmakers.
Challenges to Gas
“There is a lot of scope for replacing coal with natural gas in India’s iron and steel sector, but affordability will be key to that transition," said A. C. R. Das, a metallurgist and a former adviser to the steel ministry. “If gas becomes available at an affordable price, the plants will be willing to make that switch."
Still, shifting to gas has its challenges. India’s domestic gas production has declined over the years and fails to cater to all users. A slew of taxes across states burden imported gas, blunting the advantage of a 60% fall in a custom index based of Platts regional prices, in the past year amid a glut of supply and a recent slump in Chinese demand because of the virus outbreak.
That has left nearly three quarters of India’s gas-fired capacity idle, as they fail to compete with cheaper power from coal plants. Supply of regulated domestic gas, which declined almost 4% from a year earlier to $3.23 per million British thermal units for the half year ending March, is scarce and generators find other sources of the fuel too expensive.
The target of raising share of gas is “achievable even by 2025-26, but it needs a concerted effort from all the stakeholders," Karnatak said. “We have transformed ourselves into gas warriors."
This story has been published from a wire agency feed without modifications to the text. Only the headline has been changed.