High Prices Stoke Fears of Power Crisis in India

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India is staring at a looming power crisis due to a steep jump in coal and LNG prices that has dented demand for the imported fuels, strengthening the South Asian nation's resolve to boost domestic mining to cut dependence on imports.

Coal India, the world’s largest miner, said Wednesday it is working to boost supplies to 1.5 million tons per day in October to meet surging demand. It has increased production to average 1.06 million tons per day during the first five months of the fiscal year, which began Apr. 1, a 27% rise year over year.

The trend bodes poorly for global and domestic efforts to curb greenhouse gas emissions. Soaring natural gas prices around the world, driven by high demand, have shined a spotlight on the costs associated with the energy transition and could lead to a broader spike in coal consumption, which could disrupt targets for eliminating net emissions in time to avoid the worst effects of climate change.

Blackout Fears

The increase in Indian coal production came as utilities there cut imports by 16% over the same period to 99,600 tons per day, with Australian Newcastle coal rates more than tripling over the last year due to high demand in China and increasing demand in Europe.

Imports have fallen just as Indian power demand is on the rise, surging 16% year over year from April-August due to the easing of Covid-19 lockdown restrictions in the country.

But power plants running on imported coal have now almost stopped production, according to Coal India Chairman Pramod Agrawal.

Stockpiles are also concerningly low. About 127 gigawatts of coal-fired capacity — a third of India’s installed generation base — holds stocks that will last just eight days, compared to the government norm of maintaining 22 days' worth of stockpiles.

This means India will have to compete for imports with China, the world's largest coal consumer, or face blackouts.

LNG Demand

The jump in power demand has come as high spot LNG prices have also curbed generation from gas-fired plants. Gas-generated power contracted by 27% year over year from April-August, while coal generation increased 23% over that period.

Spot LNG prices are currently unaffordable for the power sector, state refiner Bharat Petroleum Corp. Ltd.’s Chairman Arun Kumar Singh said this week. In August, Indian LNG imports almost doubled in value to $1.1 billion, but they declined in volume by 3.5% to 92.6 million cubic meters a day.

The Indian market is now working to secure 80% of supplies on long-term contracts, after previously targeting around 60% long-term and about 40% on a spot basis, according to ES Ranganathan, the marketing director of state-owned gas pipeline utility Gail India.

Coal Gains

Ratings agency Crisil said coal inventories at power plants will improve only gradually by next March. For the rest of the fiscal year, inventories will hover around 10 days, compared with the two-year average of around 18 days, according to Crisil.

The latest crisis has been a boon for Coal India, which has been staring at an uncertain future as the government looks to accelerate the solar- and wind-power generation base to burnish its energy transition credentials.

Roughly 97% of India’s net power-capacity additions during the current financial year have been zero emissions, according to the Institute for Energy Economics and Financial Analysis.

But Agarwal says India will see a huge jump in demand for coal, which he says will remain the country’s primary source of energy for 10-15 years.

Coal, LNG Demand, ESG, LNG-to-Power
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