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India's primary energy demand is forecast to be one of the largest growers globally. Energy demand more than doubled in the period from 2000-2020, and while that pace of growth is expected to slow, Stratas still expects a 60% increase over the coming two decades, averaging nearly 2.5% growth annually. Beyond 2040, growth is expected to flatten to a more modest 1.4% annual growth rate.
While India's primary energy demand is forecast to grow at a significant rate, it is not without downside risk. India's economy has shown signs of faltering recently, and any significant economic downturn would certainly have an effect on global energy flows to India. While an economic recovery - and fast overall growth rate - in India can be expected at some point in the future, shifting that growth trajectory back several years will impact global energy production and trade, particularly those of fossil fuels.
India is expected to have a steep growth curve for natural gas consumption, but it is one that is expected to only keep pace with overall energy demand. The country has set ambitious targets to reach 15% of natural gas in its overall energy mix by 2030, up from the current level of about 6%. Stratas Advisors believes it unlikely that this goal will be achieved, for several reasons.
In the immediate term, coal remains a cheap and abundant fuel source -- as long as the economics are not bad on coal, there remains no incentive to switch to natural gas, even if the latter is also a cheap fuel. India continues to build coal-fired generation, with approximately 40 GW of capacity under construction currently, or more than the country's entire natural gas capacity. By comparison, only about 21 GW of gas-fired capacity exist in the entire country.
One of the largest long-term challenges to greater penetration of natural gas in India is the country's gas infrastructure issues. Despite fast growing demand for gas and power, India's LNG receiving terminals remain underutilized, hovering around 55-60% utilization. The government has pledged to invest $60 billion into distribution infrastructure in an effort for the city gas distribution network to reach over 75% of India's population. Further hindering increased adoption of gas in India is the lack of international pipeline connections. Currently, all natural gas consumed in India is either produced domestically or imported via LNG.
While pipelines from Iran or Central Asia have long been in the works, political and financial hurdles have kept the projects from coming to fruition. Domestic production has fallen drastically in recent years, from 48 bcm in 2011 to 32 bcm in 2018, making India far more reliant on imports. During that seven year period, the global LNG industry has experienced its own dramatic swings in price, creating a murky future in the fuel that has been hard to plan upon. Without a reliable pipeline import flow, making a long-term natural gas plan is a difficult task.
Environmental concerns remain in India, but with millions in the developing nation still lacking access to connection to the grid, the focus remains on bringing cheap and reliable power to the population before anything else.
Coal is expected to reign in the power generation sector, thought its dominance will be lessened by a combination of fuels. After 2035, much of the growth comes from natural gas, while in the coming 15 years, both the hydro and wind sectors will make noticeable gains. While this will lessen the environmental impact to an extent, India is still expected to be generating about 70% of its electricity with fossil fuels, even in 2050.