West Asia conflict highlights need for India to build natural gas reserves

Rising import dependence and supply disruptions amid West Asia tensions underscore the urgency for India to build strategic natural gas reserves and strengthen LNG storage capacity

With the West Asia crisis delivering an energy shock for import-dependent nations, the conversation has started moving towards the status and readiness of India’s strategic natural gas storage. 

While strategic petroleum reserves have been talked about for some time now, there has been little public discussion on the gas capacity, given that India meets more than half of its natural gas requirement through imports from Qatar, the UAE, and the US — all embroiled in the current conflict in one way or another. Earlier this week, A K Singh, chief executive officer of Petronet LNG Ltd, one of India’s largest gas importers, said the country was looking to expand liquefied natural gas (LNG) storage tank capacity across multiple terminals to better manage supply disruptions. 

For Petronet, the urgency is understandable: It has a 7.5 million tonnes per annum (mtpa) deal with Qatar to source LNG, but shipments stopped in early March as state-owned QatarEnergy declared a force majeure on contracts. This has the potential to cause an unprecedented supply disruption in supplies of gas — a key input for critical industries such as fertilisers, power, and city gas distribution. To be sure, the Iran war has also disrupted supplies of liquefied petroleum gas (LPG). 

India’s plan 

The government’s plan to ramp up the share of LNG in India’s energy basket from the existing 6 per cent to 15 per cent by 2030 is set to significantly expand gas usage projections and the implementation of supply infrastructure projects. As a result, it will likely increase the import burden for gas, making a robust plan for setting up gas storage capacities the need of the hour.

Such reserves are aimed at mitigating the risks associated with import reliance, as well as allowing the government to manage external energy market pressures and price volatility. During periods of low demand or favourable market conditions, surplus LNG can be stored, allowing for its strategic release when demand or prices, or both, rise. India’s natural gas consumption stands at around 200 million standard cubic metres per day (mscmd) annually and is projected to reach 297 mscmd in the “good-to-go scenario” by 2030 — expected to be met by 200 mscmd of imports and 100 mscmd of domestically produced gas, according to the Petroleum and Natural Gas Regulatory Board, the downstream petroleum regulator. 

This massive dependence on imports for a commodity prone to major price fluctuations means that strategic reserves can help the country cope with situations such as the current West Asia conflict. The 2022 global energy crisis triggered by the Ukraine war sent gas prices soaring and hit LNG imports in spite of a deal with Russia. 

Storage options 

Globally, the most common form of natural gas storage is in underground formations — primarily depleted gas reservoirs, aquifers, and salt caverns. Depleted gas reservoirs are former natural gas or oil fields that have been exhausted of their original resources. These are ideal for underground gas storage due to their existing infrastructure and well-understood geological profiles, making them a cost-effective option. Natural gas is reinjected into the porous rock formations and drawn with the same methods originally used to produce gas from the reservoir. 

The other most prevalent type of gas reserve is LNG storage, in which LNG is stored in large, insulated above-ground tanks at cryogenic temperatures. Currently, India’s LNG storage capacity covers around 12 days of gas consumption, leaving the nation vulnerable to supply fluctuations. 

“A very significant part of the strategic gas reserves is kept globally in depleted reservoirs. India, too, has been thinking of working on this for several years, however without any final decision. Such projects are more of strategic importance rather than commercial value. Thus investment is typically made by either the government or by state-owned companies with significant viability gap funding (VGF). This is akin to the crude oil strategic storage project of the government. India has now several depleted reservoirs which can be studied for suitability for underground gas storage,” said D K Sarraf, former chairman of Oil and Natural Gas Corporation (ONGC). 

Sarraf headed a high-level panel of experts on the long-term road map for the natural gas sector, which released its findings recently. The report recommends introducing a robust regulatory framework to guide the creation, maintenance, and utilisation of strategic and commercial gas reserves to address supply prioritisation during crisis and foster public-private partnerships to share financial and operational responsibilities. The government, it said, could also consider levying a cess on natural gas sold and regasification charges to fund the programme. The cess can also fund the VGF requirement for other gas infrastructure development projects. 

Global experience 

The current global operational gas storage capacity is 429 billion cubic metres, according to a report by Cedigaz, an international association that provides information and data on natural gas. This capacity is largely concentrated in the US, Russia, Ukraine, Canada and Germany, which together hold 68 per cent of global reserves. However, there is a growing focus on expanding storage in rapidly developing markets such as China and West Asia. 

Depleted fields dominate storage, accounting for 81 per cent of global working gas volumes, while salt caverns, which represent just 8 per cent of global capacity, play a critical role in deliverability, accounting for 26 per cent of the global withdrawal rate. 

Europe has one of the most developed natural gas storage infrastructures in the world. Countries such as Germany, Italy, France, and the Netherlands have extensive underground storage facilities, primarily in depleted gas reservoirs, aquifers, and salt caverns. During the 2022 energy crisis caused by the Russia-Ukraine conflict, Europe’s gas storage facilities were crucial in mitigating the impact of reduced Russian gas supplies. 

In India, the existing infrastructure includes 23 LNG storage tanks — eight at Dahej, three at Dabhol, and two each at Kochi, Mundra, Hazira, Ennore, Dhamra, and Chhara — that together cover 12 days of supplies. Given that India relies on West Asia for 67 per cent of its LNG imports, concerns about vulnerability to supply disruptions had been growing even before the Iran war. “The absence of strategic gas reserves, combined with limited LNG storage at regasification terminals, heightens the risk of supply-chain disruptions and price volatility,” the Sarraf-led panel noted. 

“As a country, India may implement a national energy security programme to fund development of LNG strategic reserves or storage. Through this programme, the government can fully or partially fund development of LNG tanks on both coasts of India. The programme can use many models such as the existing business models used in strategic crude storage programmes or development of infrastructure through VGF,” it added. 

Current status 

According to the report, studies are underway by national oil companies such as ONGC and Oil India Ltd (OIL) to build underground strategic gas reserves in depleted fields. “Such pursuits must continue to give energy security to India and it is expected that the strategic facilities would be built in phases in western and northeastern regions with an initial capacity to store 3 to 4 billion cubic metres of gas. It may take three to four years to build the first strategic gas reserve in India after necessary approvals. Overseas gas-producing companies can also be offered stakes in such facilities, as has been done in the case of strategic crude oil reserves,” it said. 

But to implement these recommendations, India will have to overcome three key challenges: The high cost of infrastructure development, regulatory gaps, and geological constraints. Notwithstanding those hurdles, GAIL, ONGC, and OIL are said to be evaluating certain depleted fields for development of underground gas storage as a buffer against supply disruptions.   

Securing the future 

• National target for gas: Boost gas share in energy basket from 6% to 15% by 2030
• Current gas consumption 200 mscmd. Projection: 297 mscmd by 2030
• Current LNG storage capacity: 12 days’ coverage of consumption
• India’s LNG storage infra: 23 tanks
• Petronet LNG planning to increase storage capacity by 70% via new tanks