[NGW Magazine] Pioneering LNG in India's Downstream

This article is featured in NGW Magazine Volume 2, Issue 15

LNG is the quickest way to get gas to new consumers – if not the cheapest: India’s network of roads and waterways is being pressed into service as gasification spreads.

Since India began importing LNG in 2004, the volume imported has grown exponentially, making the south Asian nation one of the world’s most important markets for the commodity. With local gas production unable to meet burgeoning demand, the Indian economy has been increasingly relying on imported LNG. During the year April 2016-March 2017, it imported 24.6bn m³ of LNG, up 15.5% on the year.

There are four operational LNG import and regasification terminals in India: Dahej, Hazira, Dhabol and Kochi. Presently, India’s has the capacity to import around 28mn mt/yr of LNG through the four terminals, meeting close to half of the total gas supply of the country. The Indian oil ministry estimates that import capacity will more than double in the next five years as existing terminals expand capacity and new ones come online – especially on the eastern coast.

Although traditional large-scale LNG solutions have been the point of discussion in India, many in the industry believe small-scale LNG solutions can successfully complement the existing LNG infrastructure. In fact, the view is that small-scale LNG holds the largest potential for meeting India’s gas requirements.

Huge investments and long gestation periods for conventional LNG projects pose a challenge. Also, in India, lack of large anchor customers, infrastructure problems and cheaper competing fuels have posed a challenge for gas marketers such as Gail to fully sell even their long-term contracted volumes. But although the recent decline in global LNG prices has somewhat eased the situation and boosted offtake in the Indian market, fundamental problems plaguing the LNG sector remain.

For instance, Petronet’s 5mn mt/yr Kochi import terminal remains grossly underutilised due to lack of pipeline connectivity.

Flexibility in LNG distribution  

In such a scenario, small-scale LNG solutions offer quick turnaround providing faster access to the fuel to end consumers. These could be industrial consumers who have medium to high energy demand at their premises, which are either some distance from gas pipelines or a few hundred kilometres from an LNG terminal. LNG distributed in small volumes from the main storage to the satellites 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.

“If India has to fully utilise its existing terminals and justify the new terminals being announced, the industry needs to find other demand sectors where LNG provides a more economical alternate to existing fuels used. Also, more flexible methods to distribute LNG needs to be adopted, different from the current approach of re-gasifying the LNG imported at the terminal and be dependent on the gas pipeline network to distribute it to the end consumers,” says the CEO of Delhi based small-scale LNG solutions provider VLNG, Mayank Garg.  

VLNG is developing small-scale LNG supply and distribution chain across India. The flagship project of the company, Sahaj Ganga, involves development of small-scale LNG supply chain along river Ganges on the back of National Waterway 1, which stretches from Allahabad in the state of Uttar Pradesh to Haldia in the eastern Indian state of West Bengal. This flexible supply and multi-modal distribution system using road, rail or inland waterway will be able to support variety of customers.

Strategic sites for storing LNG along the National Waterway (NW) 1 are: Varanasi in the state of Uttar Pradesh; Sahibganj in the state of Jharkhand; and Haldia in the state of West Bengal. Garg says these three hubs are expected to be ready by end of the decade.

Wartsila India’s power plants market development director M Rajagopalan echoes Garg’s sentiment. “Yes, India can take advantage of inland waterways planned for river Ganges and Krishna Godavari, for these small-scale LNG solutions. Plus, the inland based LNG solutions for city distribution or/industrial consumers can be a good solution in areas about 200 km from the bigger LNG terminal.”

Last year, Inland Waterways Authority of India (IWAI) and Petronet LNG signed a memorandum of understanding for providing an LNG based mode of transport on national waterways. Petronet LNG will design, construct and operate LNG unloading, storage, bunkering and reloading facilities on the National Waterways. Petronet LNG plans to set up a base depot at Haldia and fuelling stations at Sahibganj (in the state of Jharkhand), Patna (in the state of Bihar) and Ghazipur (in the state of Uttar Pradesh).

Wartsila’s Rajagopalan further adds that small-scale LNG re-liquefaction plants can also be an excellent solution for converting bio-gas or the gas from domestic small fields to LNG, which can be used either for city distribution or as vehicle fuel for long-haul commercial vehicles.

According to AG&P’s LNG project director Dhirendra Mishra, small-scale LNG solutions makes a lot of sense for under-served eastern states of India where there is limited or no access to gas pipeline networks so gas-fired power projects are without a reliable supply of LNG. Customers in these areas are still heavily reliant on fossil fuels because traditional power delivery models have been too bulky to meet the relatively smaller scale energy requirements.

Small-scale means short cuts

Just like VLNG which is focusing on its Sahaj Ganga project, AG&P, together with its joint venture partner in India, Hindustan LNG, is developing the midstream and downstream small-scale infrastructure that is required to import and distribute gas reliably to smaller end-users across India. AG&P plans to build small-scale regasification terminals which need to be set up to receive, store and re-gasify LNG. These smaller terminals are suited to locations where there is limited space, difficult-to-access areas and low energy demand, so large-scale regasification is not feasible. Building small-scale LNG facilities is not only more economical for these markets: it is faster and also offers flexibility, unlike pipelines.

Small-scale LNG can also play a critical role in reviving underused, gas-starved industries which came up in India in anticipation of assured gas supplies due to planned pipeline infrastructure. However, pipeline project implementations have failed to keep pace with planned investments, leaving these power plants and industries stranded.

There is consensus that large scale conventional LNG projects can co-exist with small-scale LNG solutions. “Actually, small-scale LNG terminals complement the bigger LNG terminals for giving flexibility to industrial consumers for meeting their energy demands in their processes. It can be considered for captive demands on the strength of gas being a cleaner and environmentally friendly fuel,” says Wartsila’s Rajagopalan.

Garg of VLNG says small-scale LNG solutions will depend on LNG scale conventional LNG terminals for fuel.

Challenges to be overcome

Like any new concept, small-scale LNG solutions have to overcome certain challenges in order to become successful in India. Most important will be ‘chicken and egg’ dilemma in the early stages of the rollout of small-scale LNG projects. While it is realistic to expect consumers to want security of supply before committing to small-scale LNG, potential suppliers will need to secure a market to justify their investments.

Some other challenges small-scale LNG could face in India would be similar to what conventional LNG projects face, such as: logistics of transporting LNG; land requirements for storage and handling; and chartering by land or water.

These challenges look formidable given India’s less than satisfactory experience of building out its LNG infrastructure. However, if market-friendly policies and appropriate government assistance are extended, small-scale LNG solutions can become a success in the Indian gas market.

Shardul Sharma