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China and India hope higher prices will spur gas production | Arcticgas.gov
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China and India hope higher prices will spur gas production
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By: Jeannette Lee (/bio/lee-jeannette)
Researcher/Writer, Office of the Federal Coordinator
jlee@arcticgas.gov (mailto:jlee@arcticgas.gov)
Release Date: August 21, 2013
China and India last year imported just 12 percent of global LNG supplies, but liquefied natural gas
producers worldwide are counting on burgeoning sales to the world's two most populous nations.
Both countries are moving toward steep growth in their natural gas consumption within the decade.
And while China and India see the need to import more gas, they also want to increase their own domestic natural
gas production as a way to temper dependence on costly LNG supplies.
To spur increased production at home, the two governments this summer said they would allow producers to charge
more for their gas. The intent is to attract more investment in tapping domestic natural gas reserves. By raising the
internal price, China and India hope to energize government-owned and private producers to drill in technically
challenging but gas-rich terrain.
Raising the price of energy involves substantial political risk, but so does running short of fuel. India news media
reported in August that two dozen gas-fired power plants were idle for lack of fuel, blaming a shortfall in domestic
production.
The problem isn't a lack of reserves. Rather, it's getting the gas out of the ground. China's 109 trillion cubic feet and
(sites/default/files/documents/Chin
a-and-India-hope-higher-pricesw ill-spur-gas-production.pdf)
India's 47 trillion cubic feet of proved reserves each exceed that of Alaska's North Slope.
Yet, companies have not moved aggressively enough to
develop gas sufficient to keep pace with demand in
either country. Prices have been too low to justify much
of the costly exploration and production of new basins.
While government-controlled companies may be able to
function (albeit not without protest) under these pricing
conditions, private-sector partners with the expertise
needed to develop gas cannot.
China and India each covered about 75 percent of their
gas needs with domestic production in 2012, according
to BP's annual compilation of worldwide energy
statistics. Imports covered the rest.
(/sites/default/files/images/india-natural-gas-supply-2005-2012.png)
Sources: India's Ministry of Petroleum and Natural Gas, BP Statistical Review of World Energy
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to push prices higher for domestic production are acknowledgements that consumers will have to pay more if the countries are to meet their energy
needs.
Energy demand in the two nations ticks ever upward as
their economies, living standards and census numbers
continue to grow. Both countries are seeking more
supplies of natural gas to meet this need and to beat
back the severe air and water pollution caused by coal,
their top source of heat and electricity.
Under existing pricing regimes, producers in India must
sell gas to utilities and other distributors at no more
than $4.20 per million Btu (there are different prices for
each source of supply), while in China the average retail
cost delivered to consumers was a little under $8. Such
government-imposed price caps, critics say, discourage
domestic production and the growth of imports.
(/sites/default/files/images/india-projected-domestic-gas-supply-vs-demand.png)
Sources: Indias Directorate General of Hydrocarbons, Mercados Analysis
The Indian government in 2010 estimated natural gas supply out five years as measured
against projected demand if more gas were available. (Click to enlarge.
(/sites/default/files/images/india-projected-domestic-gas-supply-vs-demand.png) )
(/sites/default/files/images/india-natural-gas-infrastructure-map.png)
Source: U.S. Energy Information Administration
India has a limited natural gas pipeline network and four LNG receiving terminals, two of
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The recommendations for the new price formula came from a Cabinet committee set up in early 2012 to review India's gas pricing mechanism. The
formula will remain valid until April 2019. After that, the committee said, "the possibility of pricing based on direct gas-to-gas competition may be
assessed."
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The Dabhol LNG import terminal, about 200 miles south of Mumbai on India's Arabian
Sea coast, was commissioned in January 2013 as the countrys third LNG regasification
terminal. The original developer, failed U.S.-based company Enron, had left the plant
unfinished more than a decade ago. GAIL (India), the nations largest gas distribution
company, and its partners completed the plant.
(/sites/default/files/images/china-gas-consumption-outpaces-production-2000-2012.png)
Sources: U.S. Energy Information Administration, BP Statistical Review of World Energy
structure of natural gas to more closely accord to market conditions. In July 2013, China altered the system it uses to compute gas prices, effectively
raising costs for non-residential users nationwide by an average 15 percent, bringing the price from a little under $8 per million Btu to an average $9. It's
the first major price increase in three years.
The decision issued by China's National Development and Reform Commission, the state planning agency, creates a two-track gas pricing system in
all its provinces and autonomous regions. The price increase will apply to natural gas use equivalent to 2012's volume. Gas consumption above that
amount will be priced to customers at 85 percent of the basket price on an energy-equivalent basis of two substitute fuels: liquefied petroleum gas, used
for cooking, and fuel oil, used for power. Local governments will be in charge of setting retail prices.
The price reforms expand on experimental price increases enacted in December 2011 in the southern province of Guangdong and the neighboring
autonomous region of Guangxi for gas produced at onshore fields in China or imported by pipeline.
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(/sites/default/files/images/china-map-natural-gas-lng.png)
Source: International Energy Agency
Chinas LNG import terminals stretch along its entire eastern coast, while pipelines
deliver gas from interior gas fields and Central Asia. (Click to enlarge.
(/sites/default/files/images/china-map-natural-gas-lng.png) )
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