Indiaâs âgas renaissanceâ - rhetoric versus reality

Most general discussion on the future of the market for internationally traded gas focuses on the âswing towards Asiaâ â specifically, China and India are highlighted as major drivers of demand. But in reality, there is considerable ambiguity over the assumptions underpinning this outlook for India. In its New Policies Scenario, the International Energy Agency (IEA) predicts that non-OECD demand will continue to constitute the majority of world gas demand, growing from 53 per cent (1,806 billion cubic metres) in 2012 to 61 per cent (3,035 Bcm) in 2035. However, within this figure, while the share representing China and India combined will grow from 11 per cent in 2012 to 24 per cent in 2035, Indiaâs share will grow from 3 to 7 per cent (as opposed to Chinaâs, which will grow from 8 to 18 per cent) while as a percentage of world demand, it will grow from 2 to 4 per cent. The proportion of gas in Indiaâs primary energy consumption will rise from 7 to 9 per cent, but this will be nowhere near enough to displace either coal or oil (44 per cent and 25 per cent) by 2035. These projections suggest that Indiaâs contribution to world gas demand is lower than perceived. Despite these conservative forecasts, Indian policymakers have tended to be very optimistic on gasâs potential to displace coal and oil in electricity, cooking, and transportation. As the use of these fuels is supported by controlled pricing and subsidies, it is ambiguous at best as to how these potential markets for gas could materialize. In fact, despite relatively high economic growth in the last decade, it is difficult to make a confident and accurate assessment of Indiaâs potential as a major gas market. Government forecasts carried out within a central planning framework tend to be overly optimistic, whereas projections by multilateral organizations tend to be cautious, but confused. The reason for this incongruity is because the Indian gas sector is characterized by two moving parts: one where prices and quantities are set by the government, and another which utilizes gas at market (import) prices. Additionally, there is some overlap between the two, complicating attempts to assess these as separate markets. The lack of a clear price signal has therefore made it difficult to determine future levels of demand.