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A perspective on LNG Imports in India

For a country energy security is very important. Energy security is defined as the ―state of protection of the country, its citizens, society, state, economy from the treats to the secure fuel and energy supply. A steady long-term increase in the global demand for primary energy particularly in developing countries like India is projected.

With high economic growth rates and over 15 percent of the world’s population, India is a significant consumer of energy resources. Natural gas demand is expected to grow considerably, largely driven by demand in the power sector. The power and fertilizer sectors account for nearly three-quarters of natural gas consumption in India. Natural gas is expected to be an increasingly important component of energy consumption as the country pursues energy resource diversification and overall energy security.

India’s consumption of natural gas has risen faster than any other fuel in the recent years. Natural gas demand has been growing at the rate of about 6.5% during the last 10 years. Industries such as power generation, fertilizer, and petrochemical production are shifting towards natural gas. India’s natural gas consumption has been met entirely through domestic production in the past. However, in the last 4/5 years, there has been a huge unmet demand of natural gas in the country, mainly required for the core sectors of the economy. Electricity generation currently accounts for almost half of India’s natural gas consumption. Natural gas use by electricity utilities grew at an average rate of over 9 per cent a year, from 3.8 billion cubic metres in 1990 to 14.2 billion cubic metres in 2005. Existing gas fired power plants in India require more than 19 billion cubic metres of natural gas a year to operate at full capacity. However, as a result of difficulties in securing natural gas supply, gasfired power plants have been running at less than full capacity, switching to higher cost liquid fuels such as naphtha where feasible.

India now has the world’s third largest economy (on a purchasing power parity basis). encouraging an increase in power plants that run on natural gas. floating the exchange rate. according to EIA estimates. and increasing domestic and foreign private participation in financial markets. much of India’s growth has been led by the services sector. which account for more than two thirds of natural gas use. unlike many other countries in Asia that have had sustained periods of high economic growth. India’s economy has undergone significant transformation since a range of structural reforms were undertaken in the 1990s. because of India’s sheer size. India consumed roughly 1. India’s energy mix is currently dominated by coal and oil. Consumption of natural gas has been increasing due to a number of factors: • • • • • Global economic growth and energy demand are increasing. abolishing industrial licensing.In 2009. Natural gas is widely applicable as a fuel source for industry. including China.0 per cent since 1990. with gross domestic product (GDP) expanding at an average rate of 6. Natural gas demand is expected to grow considerably. although the role of natural gas has been increasing. As a result. The consumption of natural gas in other industries and in households is relatively small. The expansion in economic output. The consumer trend is to greater diversity of fuel sources. . and India now ranks fifth in the world in terms of energy consumption. These reforms included opening the economy to more international trade and investment. This sector is less energy intensive than the industry sector and has moderated the rate of growth in India’s energy requirements. Primary energy consumption (excluding combustible renewable and waste) has increased at an average annual rate of nearly 5. The reform process has stimulated strong economic growth in India.8 Tcf of natural gas. although growing rapidly. supported by a large and growing population. The power and fertilizer sectors account for nearly three-quarters of natural gas consumption in India. However. The natural gas market is undergoing deregulation in several key markets. has led to a strong rise in energy consumption in India. Natural gas is a cleaner burning fuel than coal and oil. almost 300 billion cubic feet (Bcf) more than in 2008. Natural gas consumption grew by 7. commerce and consumers.1 percent a year between 1990 and 2006. Natural gas is expected to be an increasingly important component of energy consumption as the country pursues energy resource diversification and overall energy security. The main natural gas consumers in India are the electricity generation and fertiliser industries. largely driven by demand in the power sector.4 per cent a year between 1990 and 2005 and accounted for nearly 8 per cent of primary energy consumption in 2005. Even so. the actual expansion in energy consumption has been significant.

fuelled mainly by continued economic and population growth and hence growing demand for electricity. LNG imports accounted for around a fifth of natural gas consumption in India. However. as will developments in international LNG markets. there is sufficient potential in the Middle East and the Asia pacific. private sector participation in India’s gas market is increasing. and a third is near completion. India accounted for 6 per cent of Asia’s total LNG imports. The availability and competitiveness of other gas supplies and other fuels and the development of infrastructure will govern the penetration of LNG in India. particularly given the high price of alternative oil based feedstock. Continued switching to natural gas by fertiliser plants will also be a key driver of demand. to supply LNG to India. However. Two LNG import terminals are operational on the west coast of India. But with high natural gas demand. after more than a decade of planning. . including in Australia. India has also imported a number of spot cargoes of LNG. actual consumption has been constrained by the availability of natural gas supplies. LNG imports have mainly been sourced from Qatar under a long term contract. Natural gas demand is expected to continue to grow strongly in India. in which case India would need to be willing to pay higher prices to secure additional LNG cargoes. India has relatively large natural gas reserves and prospects for further discoveries are good. Production of gas from mature domestic fields is dwindling. creating a complex domestic gas pricing system. and an increasing emphasis on energy security and environmental concerns. the natural gas market has been dominated by government owned companies selling gas at heavily subsidised prices. Other factors likely to affect the outlook for natural gas demand include the pace of market oriented reforms in gas. including in gas pricing. In 2006. although imports are still well under capacity. There are plans to expand LNG import infrastructure significantly in India. although there is considerable uncertainty about the likely size of India’s future LNG market. although many potential projects will require a commitment to long term contracts from buyers to underpin their development. and the rate of development of gas infrastructure. Gas sold privately is based on market prices. Over the longer term. including from Australia. which should lead to an increase in domestic gas production. reducing incentives for private investment in production facilities. To date.While demand for natural gas in India is strong. Imports of liquefied natural gas (LNG) to India commenced in 2004. electricity and fertiliser markets. Realising this potential growth will depend on the availability and competitiveness of natural gas supplies. the outlook for the supply–demand balance in the international LNG market is expected to become increasingly tight. In 2005. In the next few years. both domestic and imports. and has resulted in the Indian Government restricting gas supplies to mainly the priority sectors.

India has two operational LNG import terminals — Dahej and Hazira — in Gujarat state. LNG imports reached more than 6 million tonnes in 2006.In India.32 billion cubic meters per year (bcm/y). The projections are also based on assumptions relating to the fuel mix in electricity generation. around 2 percentage points lower than .61 bcm/y by 2015 and 135 bcm/y by 2025. Additional supplies were sourced from Egypt. The demand for natural gas in India is expected to grow at a CAGR of 10% over the next five years and could soon be a significant player in the global gas market.2 trillion cubic meters (tcm) of natural gas reserves. made up of around 45. according to the India Hydrocarbon Vision 2025. Global consultancy firm McKinsey anticipates that natural gas demand in India is expected to increase from current 166 million standard cubic meters per day to 320 million standard cubic meters per day by 2015. Trinidad and Tobago. the share of natural gas in electricity generation is assumed to be 7 per cent in 2025. LNG import India has placed increasing focus on LNG imports as a potential means of meeting domestic natural gas demand. LNG imports have risen steadily since the commissioning of India’s first LNG terminal at Dahej in the State of Gujarat in early 2004. India has around 1. published in 2002.1 million tonnes. Abu Dhabi. In the first half of 2007. From just under 2 million tonnes that year. At present. In the recent years.58 bcm/y from domestic supplies and the rest from imported LNG. a rise of more than 66 per cent compared with the first half of 2006. the range of suppliers is becoming increasingly diverse. This is reflected in the wide range of alternative projections from Indian and international sources. There are several other proposed LNG terminals in various stages of planning. gas constitutes around 10% of the current energy basket compared to the global average of 24% and hence presents a vast potential for growth. In 2005. While current demand is around 57. Malaysia and Algeria in 2006. In this study. depending on how the gas market develops in the country. India’s energy consumption has been increasing at one of the fastest rates in the world due to population growth and economic development. India’s future demand for gas could reach 113. LNG imports by India were 4. India imported LNG from Australia and Oman. while a third terminal at Dabhol in the state of Maharashtra is under construction (table 8). In India there is considerable uncertainty about the expected fuel mix over the period to 2025. While Qatar was the sole supplier of LNG to India in 2004 and remains the largest LNG supplier at present.

gas consumption is Projected to reach 89 million tonnes of oil equivalent in 2025 (equivalent to 99 billion cubic metres and 72 million tonnes of LNG). In contrast. a possible startup date is assumed to be after 2020. Turkmenistan and Myanmar. including transmission networks. Given the uncertainties that surround the supply of pipeline gas from Iran. Projecting natural gas demand in India » On the basis of these assumptions. the rate of this decline is expected to be slowed by the production of gas from recently discovered fields in the offshore Krishna Godavari (KG) basin from late 2008.in 2005. the production timetables of these fields remain highly uncertain. This reflects an assumed continued expansion in nuclear and coal fired electricity generation over the projection period (IEA 2006a). there is potential to develop pipeline natural gas imports. Natural gas supply considerations » India has three options to meet the anticipated growth in natural gas demand over the period to 2025 — increase domestic gas production. however. will be dependent on the development of natural gas infrastructure. » India’s decision to import pipeline gas will depend signifi cantly on geopolitical and energy security issues but the competitiveness of pipeline gas with other sources of gas will also play an important role. increase LNG imports. Factors affecting India’s future natural gas demand . and import natural gas via pipeline. Distance and volume are key variables that affect the unit cost of transporting LNG and pipeline gas. While this and other new natural gas discoveries have the potential to expand domestic output significantly. the flexibility of LNG supply can largely avoid geopolitical sensitivities and may address some of the energy security concerns of gas importing countries. total primary energy consumption in India is projected to expand by 4 per cent a year to reach 837 million tonnes of oil equivalent in 2025. including from Iran. However. Only the Iran–Pakistan–India pipeline project is considered to have potential as a source of supply to India over the period to 2025. Natural gas consumption is projected to grow by 5 per cent a year between 2005 and 2025 to reach 74 million tonnes of oil equivalent in the reference case in 2025 (equivalent to 82 billion cubic metres and 60 million tonnes of LNG) (figure B). Driving this growth will be increases in demand in the fertilisers and other industrial sectors. the political risks associated with transiting through other countries can increase the costs of pipeline projects. In the high growth scenario. Several international pipelines have been under discussion in India for many years. and new sources of supply. While transporting natural gas via pipeline can be more cost effective than transporting LNG in some cases. This growth. » It is assumed that there is a continued decline in production from existing mature domestic gas fields. » Over the longer term.

high thermal efficiency. including government plans for substantial generation capacity augmentation. sectors. petrochemicals. natural gas based plants account for more than 66 per cent of urea production capacity. and the remaining capacity is based on fuel oil and low sulphur heavy stock. . Natural gas is more efficient than alternative feedstock in urea production. The fertiliser sector is the second largest consumer of natural gas in India. One of the most important factors will be the continuing deregulation of the domestic gas market.3 billion cubic metres in 2005 (IEA 2007a). Ceramics. Glass. industrial. Cement. are also likely to have a direct impact on future gas demand in India. Demand for natural gas from the fertiliser industry grew at an average annual rate of 2 per cent from 1990. as CNG. will depend to a large extent on gas availability and pricing. The extent of natural gas use in electricity generation. and lower levels of greenhouse gas and other pollutant emissions. Recent policy initiatives in the fertiliser industry seek to convert the majority of nitrogenous fertiliser production in India to natural gas. naphtha is used for less than 30 per cent of urea production. At present. Natural gas is used both as a fuel and a feedstock in various industries. natural gas consumption for the non-energy purposes has increased by 9% over the same period. It is used as a feed stock in Fertilizer. such as electricity and fertilisers. The government has made significant progress in developing a regulatory framework to facilitate open access to the pipeline network and to promote public and private investment in gas pipeline infrastructure. subsidised gas pricing toward market pricing is also a key factor in improving the overall availability of natural gas in India and will affect gas demand over the outlook period. The complex mix of administered and market gas prices that vary across consumer segments reduces incentive to invest in the expansion of domestic gas production and LNG imports. There has been an increase in natural gas offtake for energy purposes by nearly 20% from the period 1990-91 to 2007-08.» A range of factors will affect the extent and profile of India’s future natural gas demand. as city gas for cooking and heating and for transportation. The establishment of an independent regulator to monitor pipeline access and gas transport tariffs is expected to facilitate the development of a market based regime in India’s natural gas sector. to reach 8. » The continuing transition from state administered. including the development of a national gas pipeline network and the implementation of energy market and broader economic reforms. Electricity market reform. » The reform processes in key end use markets. accounting for around a quarter of natural gas consumption in 2005. There has been a steady increase in the number of gas based fertiliser plants. It is used as a fuel in the power. as well as in fertiliser production. is likely to provide incentives for new investment in gas fi red power plants. ability to meet peak load requirements. LPG industries. Gas fired power plants have significant advantages over coal. The figure below shows the natural gas off-takers in various sectors. tea plantation. Likewise. including a shorter construction period.

5 million tonnes a year. Majority of LNG supply to India usually comes from the Middle East.7 billion cubic metres in 2005. Consequently. the global market for LNG has been growing at a fast pace for the past few years. including with Iran.25 7.0 million tonnes contracted from 2004 to 2009 and the full volume from 2009 to 2029.0 billion cubic metres in 2005. Factors. Major developments have taken place in LNG trade.1 billion cubic metres in 1990 to 8. ceramic and electronics manufacturers are rapidly increasing their share of natural gas consumption. Sector Power Fertilizer City Gas Industrial Petrochemical / Refineries /Internal Consumption Sponge Iron / Steel Total CONCLUSION Existing LNG import contract Estimated in. such as huge investments.86 282. from 1.83 19. and diversification of energy mix has led to the transformation of coal-powered thermal plants in into natural gas in India. While small in absolute terms. burgeoning demand.55 India currently has one long term LNG supply contract — between Petronet and Qatar’s Ras Laffan LNG Company for the phased supply of 7.57 79. decreasing oil dependency. India is one of the major LNG importing countries in the Asia-Pacific region.66 33. although use of natural gas has been growing rapidly in recent years following an expansion in gas supply infrastructure.36 15. at an average rate of 20 per cent a year since 1990. natural gas use in the residential sector has grown strongly. Gas consumption in the industry sector has grown at an average rate of 14 per cent a year. and consumption along with market activities. Natural gas constitutes a marginal share in the residential fuel mix. including iron and steel. glass.2011-12 126. While other long term agreements have also been signed. and environmental concerns have contributed to the fast growth of the industry. but rose to more than 0. with 5. the market did not seem to have been much affected as the countries globally understood the importance of using LNG. production. The requirement of clean fuel. Rapid economic growth and rising incomes have led to a shift in consumer preferences from coal and non-commercial fuels to more convenient and clean fuels such as petroleum products and electricity (see box 2). Household natural gas consumption was virtually nonexistent in 1990. . these agreements have not been finalised and have not been included in the study According to our research report ―Global LNG Market Analysis‖.Other industrial users. Despite the economic slowdown of 2009.

S.000 mt. Its current import capacity is 13. at current prices of US gas and existing liquefaction and transportation rates. India Inks $20B LNG Import Deal with Cheniere Energy GAIL (India) Ltd. cheaper by $5 to $6 compared to a recent LNG contract with an Australia firm.5 million metric tons of liquefied natural gas (LNG).5 mtpa more than quadruple by 2020. official data published by the Indian oil ministry's Petroleum Planning and Analysis Cell. managing director of commodities research at Citigroup Global Markets Inc. the price would be $10 to $11 per unit in India. The supply arrangement is estimated to be around $15 billion to 20 billion and could be "a game changer for the Indian market". (CQP) for an annual supply of 3.000 mt in the corresponding month last year but down 13% compared with March imports of 933. India. especially on LNG. which is three times as costly as local natural gas.5 mtpa. will both become significant buyers of LNG. up 24% from 651. . Edward L. are expected to jump 40% this year. a the "The Times of India" said of the deal. has signed a 20-year import supply agreement with U. Indian energy consumers are accepting higher international fuel rates as imports of LNG.5 million tonnes per annum more than three-fold by 2015-16 and will 62. along with China.000 mt of LNG in April 2011.It is anticipated that India LNG imports will reach around 20 Billion Cubic Meters by 2020.P. had earlier said. Morse. growing at a CAGR of over 3% since 2010. based Cheniere Energy Partners L. Industry executives estimated that India's liquefied natural gas (LNG) import capacity will jump to 47. the Economic Times said. The two countries' huge demand for the clean energy will eventually create an impact on global gas prices. On the other hand. India imported 810.

The LNG deliveries into India are expected to start in 2017 from Cheniere's Sabine Pass LNG terminal located in western Cameron Parish. "The Outlook for Energy: A View to 2040. It is not surprising that many nations now venture or have started migrating into the use of clean energy programs and methods as they grow more increasingly alarmed and concerned over the planet's rising changing global weather patterns. in its latest report. Earlier." said global usage of natural gas will grow 62 per cent by 2040. ExxonMobil Corporation. . and will replace coal as the second-largest fuel supply behind crude oil by 2025. The agreement has an option for extension by 10 years. Louisiana.