Need for Strategic Reserves of Coal and Gas

Context: The Centre has asked States to lift their hydropower output in a bid to conserve scarce coal supplies, and stressing the need to build strategic reserves of imported coal and gas as was being done for petroleum products.
Rationale

• At least in the foreseeable 10 years or so, all the countries, especially major economies, will be dependent on fossil fuel supplies for base load and for grid balancing, the centre noted. 
• India will never be able to insulate ourselves from these supply shocks of imported fuel.

Background

• India’s coal reserve is of generally 28-30 days but due to disruption in supply chains induced by monsoons and inflated global prices, the reserve has fallen to 10-14 days.
• Such shortages invariably lead to outages, some of which are already being witnessed in some pockets of the country. Demand surges and disruption in supplies can exacerbate the issue.

Benefits strategic reserves

• Economies are able to adjust and tide over these supply shocks for about a month or so. 
• That will be a small cost vis-à-vis the cost of these disruptions.
• China, U.K., Europe and Singapore had faced supply challenges, high prices made energy security challenging. 
• India has 17,000 MW of power plants based on imported coal and 24,000 MW of gas-fired plants, which virtually go out of play when prices rise too high.
• Many countries have started keeping strategic reserves, because when it comes to a crunch, every country will meet its needs first. 
• Russia has curtailed gas supply to Europe because they want more gas to be consumed within their country. 
• South Asian countries to build up similar reserves.

Concerns

• A surge in power demand combined with a fall in imports due to high global coal prices have led to supply disruptions and power cuts lasting up to 14 hours a day despite record supplies from state-run Coal India. 
• Most of India’s 135 coal-fired power plants have fuel stocks of less than three days. Coal accounts for more than 70% of India’s power generation.
• India, the world’s second largest coal importer with the world’s fourth largest reserves, must also compete for supplies with China.
• High prices will make energy security very challenging if India doesn't have a well thought out strategy.

Government Steps to counter the crisis

• There is a need to diversify the energy basket to cope with the fossil fuels’ supply crunch, 
• Currently India is generating extra hydropower on off-peak days to conserve our coal. States have been asked that wherever they have water reservoirs, or higher water levels, generate more hydropower so that Country can save coal.

Reasons behind the shortage

• On the supply side, because of low investment, coal cannot be mined more than the capacity which exists today. Hence, the increase in supplies will be gradual.
• India has the world’s fifth-largest coal reserves. Theoretically, therefore, there is no physical shortage as we can mine as much as we want to.  
• During the monsoon season, rains do not just stop the mining process but can also affect coal stocks.
• In terms of demand, producers should have taken action when stocks were getting depleted and not waited till the crisis to flag the issue. 
• Ideally, if supplies were not available, provision for imports should have been made. Now, the government is asking companies to meet 10 percent of their requirement through imports.
• The global coal crisis has led to higher prices. Here, too, a sudden resurgence in demand after the pandemic has exposed the supply limitations.
• The international price has gone up by almost 40 per cent in the last month. China – a major producer and consumer – has also faced this problem as it has tried to save coal for the future and imposed restrictions on mining to go green. 
• At the global level, as power companies are not getting coal easily, they have switched over to oil, pushing up the price of Brent.
• Atmanirbhar ideology has a big role to play in this crisis. In India, coal imports have been traditionally high. Under its atma nirbharta drive, the government has voiced concerns on this issue and asked generators to be more self-reliant. 
• Coal dependency came down over time, which also coincided with a lower phase of economic growth. 
• The same has happened in China where the government has taken the greening concept seriously and asked coal producers to control production and power generators and move over to other greener fuels. 
• This has made coal producers less willing to increase investment.

Challenges

• Power tariffs: Ideally, power companies should import coal. But that increases the cost of power production and power tariffs cannot be revised easily, like in the case of crops. 
• It is often asked that if the government can keep raising the price of petrol and diesel when crude oil prices go up, why isn’t a similar policy followed for power. 
• Distribution companies have been running losses due to their inability to cut down on transmission losses or increase tariffs. As their losses mount, the amount overdue to the generators increases. 
• Therefore, the producers are not willing to increase their costs.
• Impact on the economy: The economy has been showing signs of recovering and the October-December period is crucial because there are expectations of pent-up demand helping to accelerate growth. Any disruption in the power supply can push back this process.
• The challenge is that today all the three sectors, agriculture, industry and households, are equally important. 
• The rabi sowing is about to start and power is required to drive the sowing efforts. Rabi crops are sown at the end of monsoon or the beginning of winter. They are also known as winter crops.
• For industry, production requires uninterrupted supplies. The coal crisis in the country has hit the textile processing units in Surat. Nearly 400 units in this southern Gujarat city, employing close to 500,000 people, plan to cut down production from next month because of rising coal prices.
• Inflation: The prices of vegetables have started increasing and edible oils continue to be a pain point in the inflation schedule. If power companies start revising their tariffs, inflation will shoot up.

Why India imports Coal 

• Because majority of India’s coal is non-coking/Steaming coal which produces a lot of sulphur.
• Coking coal is needed for production of steel and it has less sulphur which is beneficial for steel production. Therefore it is imported.

Road Ahead

• The coal shortage problem is very serious as it affects power supply, which is the backbone of all economic activity. It could surface again especially because the country is in a transition phase. There is much talk of reducing the carbon imprint – using less coal and shifting to renewables. All stakeholders – the Centre, states, miners and power generators – must work together and plan the strategy going ahead. 

India’s coal reserves

• The coal producing areas of India include Raniganj, Jharia, Dhanbad and Bokaro in Jharkhand.
• Coal is also classified into four ranks: anthracite, bituminous, subbituminous, and lignite. The ranking depends on the types and amounts of carbon the coal contains and on the amount of heat energy the coal can produce.
• Gondwana coal makes up to 98 per cent of the total reserves and 99 per cent of the production of coal in India. 
• The carbon content in Gondwana coal [250 million years old] is less compared to the  Carboniferous coal [350 million years old][Almost Absent in India] because of its much younger age.
• Gondwana coal forms India’s metallurgical grade as well as superior quality coal.