Vidur Singhal and Mayank Garg, VEnergy,

India, argue that the small scale LNG

sector is about to take off in India.

O
n 29 January 2004, India received its first ever
import cargo of LNG. The LNG tanker, Disha,
carrying 138 000 m3 of natural gas supplied by
RasGas, reached the greenfield LNG terminal at
Dahej, Gujarat, India. Since then, LNG imports in India have
increased steadily, and total imports 2014 – 2015 financial
year stood close to 11.5 million tpy. Presently, there are
four LNG terminals operating on the west coast of India, at
Dahej, Hazira, Dabhol and Kochi, with total regasification
capacity close to 20 million tpy.
Even though India has developed infrastructure to
import LNG, and has also secured a reliable supply of LNG
with long-term contracts, LNG marketing companies,
including GAIL, Petronet, Bharat Petrolium Corp. Ltd (BPCL)
and Indian Oil Corp. Ltd (IOCL), have struggled to market
this LNG in India, due to several factors.

Spring 2016 Energy Global 23

 Lack of an integrated gas pipeline in major sectors, such as the power and fertiliser
grid industries. In the power sector, LNG has to compete with
One of the major factors for the constrained growth of coal, which is available domestically and is imported in
LNG demand in India is the lack of an integrated gas India. With the average power generation cost from coal
pipeline grid across the country to enable supply of approximately US$0.50/kWh, power produced from LNG
regasified LNG to the end consumer. Currently, India has is more than twice that produced from coal. While there
a network of only 13 000 km of natural gas transmission has been focus on reducing emissions and using cleaner
pipelines, with a design capacity of approximately forms of energy, and gas does provide a good alternative
330 million m3/d. This pipeline network is expected to fuel to meet these clean energy targets, the current
expand to approximately 28 000 km, with a total design government has been focusing more towards solar power.
capacity of approximatley 731 million m3/d in the To date, approximately 10 000 MW of gas-based power
next 5 – 6 years, but progress has been slow because of generating capacity in India lies stranded, as there are no
difficulties faced by GAIL in land acquisition and off-takers for the expensive power generated using LNG
receiving comfort letters from the anchor customers to as fuel.
ensure minimum utilisation of the new pipelines to be
constructed. Small scale LNG, and its distribution in Regulated and fixed price of urea
cryogenic containers over road, railways and inland In the fertiliser sector, as the price of urea is regulated
waterways, can be a viable alternative to a gas pipeline. and fixed in India, it is very difficult to fit LNG into the
Under its flagship project, ‘Sahaj Ganga’, VLNG is already market. It is being argued that it is more economical to
developing a small scale LNG supply chain in the eastern import fertilisers directly in India, in comparison to
part of India. manufacturing them, with a gas delivered price of above
US$14/million Btu.
Alternative fuels
The other major reason for the constrained growth of Overcoming these problems
LNG in India is the competitive price of alternative fuels Given these factors, LNG marketing companies are
struggling to market the
already contracted
volumes in India. For
instance, GAIL is
struggling to market
LNG from its US
contract, and is now
considering trading it in
global markets.
Petronet’s Kochi LNG
terminal currently stands
at 1% utilisation, due to
the delayed pipeline
connectivity to the gas
grid and end consumers.
Many new LNG
terminals were
announced in the last
few years for both the
east and west coast of
India. However, it is
unlikely that all of these
projects will be realised.
Recently, the terminal to
be jointly developed by
BPCL and Mitsui at
Mangalore has been
cancelled, given the low
utilisation of the nearby
Kochi terminal. Any LNG
import growth forecast
based primarily on the
demand by power and
Figure 1. Current Indian gas infrastructure, including LNG terminals and pipelines under fertiliser sectors in India
construction. is questionable, and may
lead to disappointment

24 Energy Global Spring 2016

amongst global LNG producers, traders and marketing
companies.
For sustained growth in LNG imports in India, leading
to the utilisation of the existing terminal and
justification of the new terminals being announced, the
industry needs to find other sectors where LNG
provides a more economical alternative to existing fuels.
In addition to this, more flexible LNG distribution
methods need to be adopted that are different from the
current approach of regasifying the LNG that is
imported at the terminal and is then dependent on the
gas pipeline network to distribute it to the end
consumers.
Industries that can benefit from
LNG
India consumes more than 80 million tpy of liquid fossil
fuels, such as high sulfur diesel (HSD), heavy fuel oil
(HFO), liquefied petroleum gas (LPG) and naphtha in the
transportation, industries and mining sectors, and is one
of the major sources of pollution. LNG targeted towards
the replacement of these liquid fuels provides a good
opportunity. LNG contracts are typically indexed to
crude oil prices, and thus provide a natural hedge when
trying to replace crude oil derivative products, such as
petrol, diesel, LPG and naphtha. In India, with the
removal of subsidy on diesel prices, and the existing
central duty, state taxes and different cess on crude oil
products, LNG is available at a competitive price. At the
current level of oil prices, LNG used as a replacement
for diesel can provide up to 40% fuel savings.
Sectors that can be targeted are transportation,
industries, city gas distribution and mining. LNG is
quickly becoming a viable fuel in long haul trucking in
China, Europe and the US, and the same opportunity is
available in India. Public transport can switch to cheaper
LNG and help bring down the pollution level in cities,
which is quickly becoming a major problem. In view of
this impending opportunity, Tata Motors has already
developed commercial vehicles that run on LNG, and
other major commercial auto manufacturers are at
different stages of rolling out trucks running on LNG.
Even railways provide a promising opportunity for the
use of LNG. For instance, Indian Railways has already
started a pilot project, and plans to have commercial
LNG operations in place in the next 3 – 4 years. Inland
waterways, which are being pushed by the present
government, also provide a new opportunity for LNG.
Small to medium sized industries, which are
currently using diesel, LPG and fuel oil, can also absorb a
significant volume of LNG at much higher prices,
provided a reliable supply is ensured to them. Also, with
the gradual tightening of the state pollution control
boards on the sulfur and particulate matter (PM)
emissions, industries will be pushed towards using clean
fuels.
Heavy machinery used in coal mining currently uses
diesel, but can be converted to using LNG as fuel. This
has already started to happen in the US, but there is an
opportunity to create this demand in India too. City gas
distribution also has strong potential to absorb LNG
volumes, given the push to reduce pollution levels in
major cities, and as a cheaper alternative fuel to diesel
and petrol.
Distribution
Most of this demand will be distributed in nature, will
require aggregation at the regional level, and will be
served through customised flexible supply and
distribution models and not through gas pipelines. LNG
distributed in small volumes from the main storage to
the satellite hubs and then to end consumers using
multiple modes of transportation, such as road, railways
and inland waterways, will be the most effective way to
serve these end consumers. This method of supplying
and distributing LNG will allow serving the end
consumers according to their individual requirements.
The Indian peninsula is geographically well suited to
build this distributed network to supply LNG in small
volumes to end consumers. It can be envisioned that, in
a few years, there will be small LNG storage facilities at
all of the major ports of India, connected to the big LNG
terminals via small LNG carriers moving along the
country’s coastline. From these small storage hubs on
the ports along the east and west coast of India, LNG
will be distributed to satellite hubs, LCNG stations, and
to the end consumers through truck, railways and inland
waterway barges in cryogenic containers.
Leading the way
India’s major challenge in the growth of small scale LNG
is that the end consumer is reluctant to take any steps
towards transitioning to LNG unless a reliable and
continuous supply of LNG is demonstrated to them.
Meanwhile, the infrastructure companies that should be
building the small scale LNG distribution network are
looking for a minimum demand off-take before they
develop the network. VEnergy believes that the small
scale LNG growth story in India will be written by small
companies and new age entrepreneurs who will be able
to identify small opportunities in different parts of the
country and will develop solutions accordingly. Several
such companies will grow in different parts of India and
together they will be able to cover much of the country.
Already, a few companies have announced plans to
develop such facilities on different ports. As mentioned
before, one such project was recently announced by
VLNG, which, as a part of its flagship project,
‘Sahaj Ganga’, announced that it will develop a small
scale LNG supply chain along the river Ganges on the
back of National Waterway 1 to distribute LNG in the
eastern and central part of India and target diesel, LPG
and HFO replacement with LNG.
Conclusion
With the removal of subsidy on diesel prices, growing
concerns over high pollution levels in cities, availability
of LNG import infrastructure, and competitive long-term
LNG contracts secured by GAIL and Petronet LNG,
VEnergy believes that the small scale LNG sector is on
the cusp of take-off in India, and can add up to
10 million tpy of LNG demand in the next 10 years.
Spring 2016 Energy Global 25