A Natural Choice

India is doubling production of natural gas in Gujarat to provide a cleaner and cheaper fuel to more households, transport services, and industrial enterprises.

Vadodara, India—The streets of downtown Vadodara pulsate with buses and auto-rickshaws - yet the air is less polluted with traffic fumes than in many other Asian cities. The reason: most of the inner city's public transport runs on compressed natural gas (CNG), which is cleaner than gasoline or diesel.

In an ammonia plant on the city's outskirts, a state-run enterprise has substituted natural gas for naphtha for the past 4 years - and would use more gas to increase production if it were available. Among ordinary citizens, tens of thousands of households have switched to cooking with natural gas rather than more expensive kerosene.

A Public-Private Partnership for Clean Power

Driven by government policy to use cleaner fuels, India is switching from oil and coal to natural gas to meet energy needs that grew at a yearly average of 4.5% over the past decade. Natural gas contributes only 8% to the country's energy requirement - compared with nearly 90% by oil and coal. The government wants to lift the share of natural gas to 15% by 2012 and 20% by 2025.

To support the government's goals of reducing greenhouse gas emissions and strengthening energy security by diversifying to domestically processed cleaner fuels, India's first liquefied natural gas (LNG) import and regasification terminal at Dahej started operations in April 2004.

The project, owned by Petronet LNG and supported by equity and debt financing by ADB, imports LNG, mostly from Qatar, converts it back to gas, and sells the gas to off takers for distribution to industry, transport services, and household consumers.

Starting with a capacity of 5 million metric tons per annum, Petronet doubled its capacity to 10 million metric tons in 2009 after adding two storage tanks and a jetty at Dahej. Petronet is building a second terminal at Kochi, Kerala, with an initial capacity of 2.5 million metric tons per annum, expandable to 5 million metric tons.

Already, the project is playing a sizeable role in helping India switch to LNG. In 2008, Petronet supplied customers with 9,274 million cubic meters of natural gas, equivalent to 20% of India's natural gas consumption and 78% of total gas imports.

The contribution toward climate change mitigation is significant, notes Pradeep Perera, an ADB senior evaluation specialist. The LNG displaced fuels, including naphtha, coal, heavy furnace oil, or diesel equal to around 6,983 kilo tons, which would have emitted 21.7 million tons of greenhouse gas emissions. LNG, which emits lower amounts of greenhouse gases, produced 16.3 million tons of greenhouse gas emissions, resulting in greenhouse gas savings of 5.3 million tons a year.

After financing a feasibility study for the venture, ADB has taken a 5.2% equity stake (equivalent to an initial investment of about $10 million) in Petronet and has provided financing to its Dahej expansion program with a loan of 6.75 billion rupees (Rs) (US$144 million).

Half of Petronet's shares are held by four Indian state oil companies, with Gaz de France, which provides technical expertise, holding 10% of the equity. The remaining 40% is held by ADB and other private interests following an initial public offering.

"Petronet represents a classic example of a public