Domestic Gas Scenario: Reversing the declining production trend

Reversing the declining production trend

The production of domestic natural gas has seen a constant decline over the past five years. Production declined from about 143 million metric standard cubic metres per day (mmscmd) in 2011-12 to 87 mmscmd in 2016-17. This was primarily due to a decline in production from the Krishna-Godavari (KG) basin and other ageing wells. This was also a result of soft natural gas prices observed globally, from 2010 till recently. As a result, the share of domestic gas has fallen from 73 per cent of India’s total gas consumption in 2011-12 to about 50 per cent in 2016-17, as the industry started to increase its reliance on imported regasified liquefied natural gas (R-LNG).

However, more recently, there has been some improvement in domestic gas production and a reversal in this declining trend. Production of domestic natural gas was 89.7 mmscmd during the period April 2017 to January 2018, an increase of 31.3 per cent from the 68.3 mmscmd during the corresponding period of the previous year (2016-17). Going forward, domestic gas production is expected to increase to about 143 mmscmd by 2026-27. This will be supported by capacity augmentation from a number of projects. Natural gas fields that are expected to increase production include the Oil and Natural Gas Corporation’s (ONGC) KG-DWN-98/2 block, the Vashishta and S1 gas fields, C-26 block, and the Daman, Bassein and Vasai East discoveries. Production is also expected to increase from the KG-D6 basin (Reliance Industries-BP Plc), in which a Rs 400 billion investment was recently approved by the Directorate General of Hydrocarbons. A peak production increase of about 20 mmscmd is expected to be seen from the block. Fields in KG-D6 from which gas production is expected to increase are MJ-1, the D-2, D-6, D-19 and D-22 deep-sea satellite discoveries, and the D-29 and D-30 fields.

The increase in production is also assisted by a favourable policy environment. The government recently announced the new Hydrocarbon Exploration and Licensing Policy (HELP) to replace the earlier New Exploration Licensing Policy. Under HELP, the government has put in place supportive guidelines to attract private players, such as a single licence for exploration and production, an open acreage licensing policy and a revenue sharing model (as opposed to the previously used cost recovery model). The government has also launched the Discovered Small Fields [DSF] Policy, under which it offered 67 oil and gas fields through an international competitive bidding round in 2016. In February 2018, the cabinet decided to extend the policy and is planning to offer another 60 oil and gas DSFs in the second round of the bidding to take place later this year.

Bridging the gap through R-LNG

India’s current domestic gas production of about 87 mmscmd is insufficient to cater to its current demand. Thus, it has to depend on imported R-LNG to bridge the demand-supply gap. The share of R-LNG has been increasing in the country’s energy mix. In 2017, R-LNG imports increased to 68 mmscmd, which was equal to the total domestic production of natural gas. In the future, a number of projects such as Petronet LNG’s terminal in Dahej, Shell India’s Hazira LNG port terminal, etc., are expected to create additional R-LNG capacity, which is expected to increase from about 23.5 million tonnes per annum (mtpa) in 2018 to about 61.5 mtpa by 2025. This will open up a vast number of procurement options for CGD operators.

Outlook

Going forward, the demand for natural gas is expected to continue on its growth trajectory. The domestic demand for natural gas, which was around 170 mmscmd in 2017, is expected to increase to more than 330 mmscmd by 2027. A part of this demand growth is expected to be met through domestic production, which is expected to increase to about 143 mmscmd by the same year. The balance demand is expected to be met through R-LNG imports for which significant capacity addition has already been planned. Increased production is expected from important domestic gas fields such as the KG basin and new fields such as ONGC’s S1 and Vashishta. With the government encouraging private investment through a favourable policy regime and private players being given more freedom for price fixation, the sector seems to be lucrative for private investment and poised for steady growth.

Based on a presentation by Raghav Mathur, Associate, ICF International, at a recent India Infrastructure conference