 "LNG")
India awarded 61 areas under the 11th city gas distribution (CGD) round that will, when it is complete, extend coverage to 88 per cent of the country’s land area and 98 per cent of households. This is a remarkable achievement considering that five years ago city gas networks covered only 11 per cent of the country’s area and 19 per cent of the population.
But the timing coincides with another statistic, the irony of which is not lost on city gas companies or the government — India’s LNG imports declined for the first time since 2013. Import of the fuel declined 9 per cent in calendar 2021 to around 24 million tonnes (mt) over a record 26.5mt in 2020, and was marginally above 2019 levels, according to data from KPLER, a Paris-based data intelligence provider on commodity markets.
“LNG demand in the country has been hit severely,” said Venkateshwar Prasad Sinha, an LNG consultant who was formerly looking after LNG for Indian Oil Corporation. “Demand is expected to remain at current low levels for a few more months.” Spot LNG purchases are expected to be limited in a high price environment, an analyst at S&P Global said.
India’s LNG demand will continue to be weak this year if strong competition between Asia and Europe for cargoes and adverse weather underpin prices at present levels. Indian importers paid $7.8 billion for 2.6 per cent less LNG this fiscal up to November compared to $4.7 billion in the year earlier period. Spot LNG prices are “unsustainable and unaffordable,” a senior Petronet LNG official said.
The surge in gas prices couldn’t have come at a more inopportune time for India. LNG is key to New Delhi’s plans to increase the use of gas to 15 per cent of its energy mix from a little over 6 per cent now, and India depends on imports to meet over half its gas needs.
Adverse weather events are keeping LNG rates firm and volatile even as a growing commitment by wealthier nations to climate change has made gas a fuel of choice for energy transition. Wealthier nations, including China, can afford to pay high prices for the fuel. But the path toward a “gas-based economy” in India may be complicated by consumers’ price sensitivity, the Paris-based International Energy Agency (IEA) said. China became the world’s biggest LNG importer last year after paying record rates of over $18 per million British thermal units (MMbtu) for spot LNG, three times that of imported pipeline gas.
Can India’s economy and its consumers afford to pay such high rates even as they aspire to increase gas demand fourfold by 2030 from current levels? If not, what happens to the billions of dollars spent on gas infrastructure?
New Delhi is expecting investments of $66 billion to develop gas infrastructure — pipelines, city gas distribution and LNG regasification terminals. The entire city grid network is underpinned by two new transmission lines stretching across the east and the north-east. India has 42.7 million tonnes per year (mn t/yr) of import capacity at six terminals, including one on the east coast, and with three terminals of around 15 mn t/yr of combined capacity scheduled for commissioning next year.
The availability of less subsidised gas and extreme LNG prices will hurt city gas distributors in the October-December quarter, brokerage Nomura said in a January 14 report, a hint of what’s in store for the business. Distributors can increase prices but that can crimp demand. IGX, the country’s first gas exchange, will also be impacted by high LNG rates and limited imports as it affects volumes traded on the bourse.
LNG prices climbed to record levels last year with some spot cargoes changing hands at over $35 per MMbtu, and freight rates exceeding $300,000 a day, up fivefold from 2020. LNG also became much more expensive than oil on a calorific value basis. Record rates prompted two of Petronet’s regular customers in Mangaluru, including refiner Mangalore Refinery and Petrochemicals Limited, to stop buying the fuel last year. Industries and refineries opt to burn naphtha, petcoke or fuel oil at $10-15 per MMBtu.
LNG imports also declined last year because domestic gas production rose 22 per cent year-on-year in the April-November period.
Reliance Industries and BP expect three projects in block KG-D6 to produce over 30 million cubic metres a day at full production in 2023. This level of supply would account for 17 per cent of India’s gas demand at current consumption levels, estimates KPLER senior LNG analyst Laura Page. But locally available gas is a fraction of total demand.
Gas consumption in India increases by an average of 7 per cent a year, estimates IEA. Import dependency will climb to 69 per cent of demand by 2040 from 50 per cent now and LNG imports could quadruple by 2040.
It may come as a surprise that LNG demand rose to a record in 2020 when India experienced a slew of lockdowns, closing industries and CNG stations. But the year also coincided with a period of rock-bottom LNG prices.
Indian importers capitalised on record low fuel rates to increase purchases. Brent crude prices, an international benchmark for petroleum prices, fell to around $9 a barrel in April 2020, the lowest since December 1998. LNG prices dropped to record lows, with some spot cargoes in Asia traded at below $2 per MMBtu over the summer.
“Gas will play a significant role in India’s march towards a low carbon future as part of its pledge during COP26 to reduce total carbon emissions by one billion tonnes from now till 2030,” Indian Oil Corporation Chairman Shrikant Madhav Vaidya said. Significantly, its role will depend on global LNG prices.
