India Needs Long Term Contracts to Lock LNG Supplies
Platts Commodity Week Mumbai took place during Sept. 2 and 4 at city’s ITC Maratha Hotel. Stephanie Wilson, Managing Editor, Asia LNG spoke on the topic India LNG: challenges to and opportunity for growth.
Opportunities
According to Wilson, some of the factors boosting growth in gas consumption in India are growing economy, need to provide electricity supply to nearly 25% of India’s 1.25 billion people, fifth largest LNG importer in the world and country’s aim to have energy independence by the year 2030. She added that alongside China, India would be the “engine driving LNG import demand in Asia through 2035.”
Power sector will be a prominent driver for gas demand. However, currently the sector uses coal as the dominant fuel. In the Indian power mix, out of the total installed capacity of 180.4 GW, coal is being used for 101 GW while hydro takes 39.3 GW and natural gas usage comes third at 28.8 GW.
Usage of natural gas in the mix is forecast to increase to 47.4 GW in the total installed capacity of 282.4GW by 2017. However, coal will still remain the dominant fuel.
Challenges
According to Wilson, some of the main challenges faced by the natural gas sector in India are high price sensitivity, administered price regime, gas infrastructure, competition from alternate fuel, no regulation on burning and competition from other global consumers.
Wilson pointed that although India has a large appetite for gas, the market is highly price sensitive. Administered prices continue to hinder development of gas industry.
There have been some reforms on the gas pricing front recently. In June, India’s Cabinet Committee on Economic Affairs (CCEA) headed by Prime Minister Manmohan Singh has approved Oil Ministry's proposal to hike price of all domestically produced natural gas to $8.4/mmBtu from $4.2/mmBtu. The new price regime will come into effect from fiscal starting April 1, 2014 and will valid for five years. Also, the price would be reviewed every quarter.
Commenting on the move to hike domestic price, Wilson said that there still remains a risk of litigation as a public interest litigation (PIL) has already been filed by some parties and response of the government is awaited on this topic.
On the infrastructure front, India needs to build more LNG terminals, domestic and transnational pipeline, gas storage facilities and unbundle transmission and marketing entities, Wilson said.
India currently has four operational LNG terminals: Dahej terminal (Petronet LNG), Hazira terminal (Shell), Kochi terminal (Petronet LNG) and Dhabol terminal (Ratnagiri Gas and Power). Some proposed terminal expected to come online by 2017are at Ennore (Indian Oil Corp), Mundra (GSPC) and Gangavaram (Petronet LNG).
Another major challenge faced by gas sector in India is availability of cheap and abundant coal. India has the world’s 5th largest reserves of the coal in the world and there are no formal regulations on burning.
In addition to domestic issues, India also faces competition on the global stage. Japan and South Korea, being two biggest LNG buyers, pose a serious competition to India in the global market place. Apart from large buyers, these are high prices markets, Wilson said.
Traditional LNG buyers aside, India may have to fight for the fuel from some new emerging markets like China, Singapore, Thailand and Malaysia.
Conclusion
Concluding her presentation, Wilson said that India would continue to rely on LNG imports. However, she added that proposed NBP/HH/JCC LNG linkage could use review and India must sign more term contracts if it is to lock in supplies for the end of the decade.