Power Plants Increasing their Reliance on Natural Gas

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Industry Outlook Team | Monday, 03 August 2020

According to the government data, the amount of gas used by power plants in India has been the highest in the June 2020 quarter if we compare it with the data of the last three and a half years. The increase in usage of gas as an alternative to the existing primary source of coal is being attributed to cheap imports of Liquefied Natural Gas (LNG) by power plants along the west coast. This is expected to exacerbate the coal market scenario in India which is already spelling doom. This can also be viewed as a shift towards natural gas power plants.

The silver lining to this development is that it is going to create opportunities for LNG sellers for quite some time to come, at least till September, if power producers are to be believed. This has come as a relief for the LNG sellers as the demand for LNG has slumped across the globe amid the Covid-19 pandemic. The amount of imported gas consumption by power plants in India has increased by 2.4 percent.

Rising Gas Consumption by Power Plants

As per the data released by Central Electricity Authority of India, if we compare it with the same quarter a year ago, gas consumption by power plants has risen by 11.7 percent, which now amounts to 104.83 million standard cubic metres per day (mmscmd).

Changing tack, major gas importers are now resorting to short term spot buying of gas as opposed to the long term contract they used to hitherto get into. Although it is arguable as to how long this trend is going to continue, it certainly is a better deal for them in the current situation as it helps them benefit from the dwindling prices.

“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),” said Vivek Mittal, General Manager for Marketing at Petronet to Reuters.

Coal Market in the Doldrums

Considering the paradigm shift away from coal based power generation amid the decreasing power demnd, the industry is going to witness an increase in the number of gas power plants as opposed to coal-fired power stations. Coal India which sells majority of its produce to power generation firms has been registering lowest sales figures lately, reaching its lowest in the last four years. Experts believe that the dismal sale of coal is expected to continue till the end of September.

Looking at where the power generation market is headed, it is debatable as to what extent the power plants must increase reliance on natural gas and reduce dependence on coal.