January 2017

Trends and Resources

Business Trends: India’s natural gas demand—a welcome sign for LNG exporters

India is emerging as the world’s new oil demand center. Complementing its thirst for crude oil, the country has the potential to become a hotbed for natural gas consumption over the next few years.

Nichols, L., Hydrocarbon Processing

India is emerging as the world’s new oil demand center. Complementing its thirst for crude oil, the country has the potential to become a hotbed for natural gas consumption over the next few years. India’s forecast natural gas demand has given rise to a surge in billions of dollars of announced investments in the construction of new natural gas infrastructure. From massive capital investments in exploration and production activities, to the construction of additional natural gas pipelines and LNG import capacity, India’s natural gas sector must build to meet burgeoning demand.

India aims to use FSRU vessels, such as the Höegh Gallant, to import LNG. The Höegh Gallant is presently operating for EGAS in Ain Sokhna, Egypt. Photo courtesy of Höegh LNG.

According to the International Monetary Fund’s World Economic Outlook 2016, India is forecast to be the fastest-growing economy over the next decade. The country is emerging as the world’s new oil demand center. The growth in oil demand has sparked a surge in the construction of new refining capacity. By the early 2020s, India is forecast to increase its domestic refining capacity from 4.6 MMbpd to approximately 6.3 MMbpd. 

Complementing its thirst for crude oil, India has the potential to become a hotbed for natural gas consumption over the next few years. The country has announced billions of dollars of investment in the construction of new natural gas infrastructure. This large capital investment includes a massive buildout of natural gas pipelines, processing centers and LNG import terminals. As the country’s demand for natural gas continues to increase, investments in the country’s midstream and downstream sectors are imperative to meet burgeoning demand.

The following is a detailed look at India’s natural gas production and consumption, its plan to satisfy increasing domestic natural gas demand and a detailed overview of the country’s massive LNG import terminal buildout.

Regasification capacity

FIG. 1. India’s supply and demand of natural gas, 2005–2015. Source: BP’s Statistical Review of World Energy 2016.

Just as the country’s refining and petrochemical sectors will see substantial growth through the remainder of the decade, India plans to dramatically increase its LNG import capacity. At present, Indian gas production meets nearly half of domestic demand. According to BP’s Statistical Review of World Energy 2016, India’s natural gas production has fallen dramatically over the past couple of years. The country’s domestic natural gas production peaked in 2010 at 44.5 Bm3, but it has declined over the past few years, settling at 29.2 Bm3 in 2015. Although domestic natural gas consumption has fallen within the same timeframe, India must rely on imports to satisfy demand (FIG. 1).

India’s natural gas demand is expected to grow substantially by 2020. Demand from gas-consuming industries, such as power and fertilizer, is rising steadily. This upward trend is the result of several factors, which include the country’s “Make it in India” program and the need to curb emissions. Prime Minister Narendra Modi’s “Make it in India” campaign focuses on expanding local manufacturing and economic growth to turn India into a global manufacturing powerhouse by 2020. India utilizes coal and oil for the majority of its energy and fuel needs. To help reduce emissions, the country is engaged in efforts to increase natural gas use in the total energy mix. Presently, natural gas consumption represents approximately 6.5% of India’s total energy mix. The country’s goal is to increase natural gas use to 15% of total energy consumption by 2020.

According to BP, the country has the potential to unlock gas reserves of approximately 10 Tcf–15 Tcf by 2022. To accomplish this goal, an investment of nearly $45 B would be required for exploration and production purposes. Even if domestic natural gas production is increased, the country’s efforts to distribute it are severely hindered by the lack of natural gas infrastructure. According to Prime Minister Modi, that is likely to change in the near future. At a recent industry conference, he announced that the Indian government plans to extend piped natural gas to 10 MM homes over the next five years, double the length of the national pipeline network to 30,000 km and build a new gas line to the underdeveloped eastern region.

In total, India aims to invest $100 B in its natural gas sector by 2022. This ambitious target includes the construction of natural gas pipelines, completion of the gas grid, a massive buildout in LNG import terminal capacity and the construction of gas distribution networks to nearly 230 cities.

At present, the country’s limited natural gas infrastructure and its inability to produce adequate supplies of gas require it to rely mainly on imports of LNG. India is the fourth-largest LNG importer in the world after Japan, South Korea and China. According to India’s oil minister, the country is investing approximately $15 B over the next five years in pipelines and LNG import terminal developments. The country plans to more than double its LNG import capacity by the early 2020s.

For this reason, India is expanding import capacity at its LNG terminals, as well as building grassroots facilities and utilizing floating storage and regasification unit (FSRU) vessels. The country has four operational LNG import terminals with a combined installed capacity of 25 MMtpy. These terminals are located at Dahej, Hazira, Dabhol and Kochi. A 5-MMtpy expansion project was completed at the Dahej LNG import terminal in 3Q 2016. India’s Ministry of Petroleum and Natural Gas announced that LNG import capacity will increase from 25 MMtpy to 50 MMtpy. The country’s LNG terminals in operation, as well as planned LNG projects, are listed in TABLE 1.

If built, India’s additional 25 MMtpy of LNG import capacity will be a welcome sign for LNG exporters. Even with natural gas demand increasing around the world, LNG supply capacity is outpacing demand growth. This trend is leading to a glut of supplies. New LNG-importing nations, such as Egypt, Jordan and Pakistan, have entered the market. However, these new importers’ incremental demand is not large enough to soak up the vast amount of LNG liquefaction capacity that will begin operation over the next few years. Nearly 80% of these new LNG supplies will come from Australia and the US.

In the short term, LNG supplies will not be a problem; the problem will be finding a home for all of the LNG. This predicament will put LNG exporters in fierce competition with one another to maintain market share. India’s massive natural gas demand and LNG import buildout could provide LNG exporters with a robust market for many years.

India is also planning to utilize LNG as a bunker fuel and transportation fuel. The country has plans to build four LNG barges along the Ganges River. These barges will provide waterway transport vessels with cleaner-burning LNG, as opposed to diesel fuel. The fuel switch is expected to cut fuel costs for waterway vessels, as well as reduce carbon dioxide emissions by 25% and nitrogen/sulfur oxide emissions by 90%. At present, Petronet is conducting a feasibility study on four pre-selected dock locations. The preliminary locations of the LNG barges are at Haldia, Ghazipur, Patna and Sahibganj. If greenlighted, Petronet will lead the construction efforts, as well as operate the facilities.

India is also promoting the use of LNG-fueled vehicles to curb emissions and mitigate its dependence on oil imports. India’s Petronet is heavily involved in promoting LNG as a transportation fuel. According to a November report from Reuters, Petronet plans to unveil in January a detailed program to sell LNG as a transportation fuel. This plan includes LNG to be used in vehicles, water vessels and trains. Petronet is also in talks with major Indian fuel retailers to install LNG pumps at their fuel locations.

LNG-fueled vehicles, in combination with new Bharat Stage 6 fuel regulations, could have a dramatic impact on vehicle emissions in the country. Air pollution has become such a crucial issue that New Delhi and other cities are requiring drivers to use their vehicles only every other day. The government is also investing in the construction of compressed natural gas (CNG) fueling stations in the hope that citizens will switch to the cheaper, more fuel-efficient transportation option.

India’s gap between natural gas production and demand has given rise to a surge in announced LNG import terminal capacity construction. However, the country must build additional natural gas pipeline infrastructure to distribute the commodity to domestic demand markets. With the continuing surge in the country’s economic activity, natural gas will remain in high demand through the end of the decade. HP

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