The case for small-scale LNG in India: Q&A
India is looking to increase the share of natural gas in its primary energy mix to 15% by 2030 from about 6% today. The government believes that cleaner energy sources like natural gas will help in fighting chronic air pollution that plagues most states in north India. Natural gas is primarily distributed in India via a 17,000-km network of transmission pipelines connecting LNG terminals and domestic gas fields with consumers across different sectors. However, access to pipelines is limited across large parts of the country.
A report, published by New Delhi-based Council on Energy, Environment and Water in April, argues that even the planned 15,000-km expansion of the transmission network will not reach all potential major gas consumers due to the country's sheer size. Small-scale LNG (ssLNG) solutions make a lot of sense for ensuring gas reaches a larger number of potential users, the paper states.
The authors, research analyst Sabarish Elango and senior programme lead Hemant Mallya, discuss the report's findings with NGW.
The report makes a very strong case for small-scale LNG (ssLNG) in India. It notes that potential customers need to be made aware of its advantages. What is the level of awareness now and how can stakeholders create further awareness?
Awareness among industrial consumers is increasing. There are companies like Seros and GasGrows operating along the west coast (Maharashtra and Gujarat primarily) that offer ssLNG transport and regasification services. The marketing from these companies is presumably increasing the awareness. In addition, several LNG terminals are offering ssLNG through 'LNG by truck' initiatives which are utilised by medium to large-sized customers who can absorb significant quantities (entire container loads) of ssLNG. Stakeholders can create awareness by reaching out to trade associations of MSME clusters. Another option is for terminals and aggregators to tie up with city gas distributors (CGDs) who do not anticipate a transmission pipeline connection for their geographic area(s) soon.
The report highlights a number of potential industries where ssLNG can be a viable option. Which segments hold the most promise? Which industries can undertake the fastest adoption?
As we see it, an industry or cluster with significant demand for LPG can easily switch to natural gas, as the retrofitting of equipment would not be major for a gas-gas transition. Also, glass and ceramics industries typically use dual-fuel burners. So such industries can easily switch to gas. For consumers of liquid fuels such as petroleum coke and diesel, some amount of retrofitting would be necessary. However, considering the potential savings from gas consumption, this should not be a major barrier. The focus should be on identifying aggregated volumes from industrial units that can justify ssLNG.
Do you see a bigger demand for ssLNG solutions in specific regions?
ssLNG holds more promise in those regions of the country which have a nearby LNG terminal and do not have a transmission pipeline connection as of yet (large areas in Tamil Nadu, Karnataka, etc.); ssLNG could remain the de facto gas source for consumers in these regions. Even for areas that have been allocated for piped gas development, the reach of the networks being built would depend on demand concentration in regions within that area. So consumers outside the proposed coverage of the network could be serviced by ssLNG.
Apart from industrial consumers, we see the potential for ssLNG to service LNG refuelling stations being planned along major highways. If and when LNG-powered heavy vehicles become popular, ssLNG would be necessary to feed these demand nodes. For example, as of 2019, China had 6mn gas vehicles, of which 200,000 were heavy duty transport vehicles.
The report flags policy ambiguities, especially regarding infrastructure and marketing exclusivity. Don't you think this a serious challenge that can restrict the growth of ssLNG in India? How confident are you that the policymakers will address these issues quickly?
The ambiguity is a consequence of CGDs propagating the notion that they have the sole marketing exclusivity, whereas, the exclusivity is limited to their own infrastructure. This was complicated by the fact that PNGRB's [Petroleum and natural gas regulatory board] proposed regulations on common/contract carrier initially had provisions for CNG stations which implied that CGDs do have marketing exclusivity. This provision was removed in the notified version. Therefore, at this point, the fact needs to be reiterated simply in a communique by the ministry of petroleum and natural gas and the PNGRB. We hope the issue will be clarified, as major players like IOCL, Petronet LNG, Shell, Gail and others are investing in the ssLNG space.
You mention IOCs' presence in the ssLNG segment. Do you see other bigger players being interested in offering ssLNG solutions?
Yes, for e.g. Shell recently inaugurated a truck-loading facility in their Hazira terminal. As mentioned above, IOCL, Petronet, Gail, BPCL and other major players are already active in this space and will definitely expand this line of business. We also anticipate demand aggregators such as Seros to proliferate in the future as more LNG terminals are built across the geographies in India. We see it as a win-win; the consumers can source gas at more competitive prices and the LNG terminals can increase their capacity utilisation.
Finally, have you studied how much gas demand the ssLNG sector can generate in say five or 10 years?
At present, it is difficult to estimate considering the many different types of consumers who could potentially consume ssLNG. Each of these would grow at different rates. Also, new consumers such as inland waterways, LNG transport, etc could come up. However, to quantify the potential for ssLNG, the industrial demand for LPG and high-speed diesel stood at 41 and 144mn m3/d respectively in 2020 (as per PPAC data) in states which are around 600 km away from LNG terminals. For comparison, the total national gas consumption in 2019-20 was 155mn m3/d. That these industries are consuming much more expensive fuels is telling that they do not have access to competitively priced gas.