Meeting Demand: LNG imports continue to increase

LNG imports continue to increase

India has been witnessing a continuous growth in the imports of liquefied natural gas (LNG) over the years. This is primarily a result of the significant gap which exists between the demand for natural gas and the domestic supply. In the future too, LNG imports are expected to increase. To cater to this growth in imports, there are a number of LNG and floating storage regasification unit (FSRU) projects in the pipeline. In addition to the existing 26.7 million tonne per annum (mmtpa) LNG import capacity, there is a 45 mtpa pipeline of projects. Further, construction is complete at the 5 mtpa Mundra LNG terminal and it is expected to be commissioned soon.

With a growing share in the country’s energy portfolio, LNG is also being explored for a number of uses. These include upcoming areas such as transportation in addition to the traditional uses such as in the power, fertiliser and city gas distribution (CGD) sectors. Going forward, the dependence on LNG is expected to increase.

Indian Infrastructure takes a look at some of the recent trends and areas of growth that are going to shape the Indian LNG market…

LNG import and pricing trends

According to data available with the Petroleum Planning and Analysis Cell (PPAC), Ministry of Petroleum and Natural Gas (MoPNG), the total domestic gas production in 2017-18 (excluding losses and flaring) was 31,731 million metric standard cubic metres (mmscm). The total consumption on the other hand was 58,059 mmscm. The gap in demand and domestic supply was met through LNG imports, which have increased from 24,686 mmscm in 2016-17 to 26,328 mmscm in 2017-18, a year-on-year growth of almost 7 per cent.

India is currently the fourth largest importer of LNG in the world after Japan, South Korea and China. Lower global LNG prices coupled with a shortage of domestic natural gas production have pushed LNG imports. The US Henry Hub spot gas prices have been in the range of $2 per million metric British thermal units (mmBtu) to $4 per mmBtu, while Japanese LNG prices have fallen significantly from a high of $16.75 per mmBtu in 2012 to $9.40 per mmBtu in May 2018. With this decline in prices, Petronet LNG Limited successfully renegotiated its long-term LNG contracts with RasGas and Exxon Mobil, while GAIL (India) Limited renegotiated its deal with Russia’s Gazprom.

India imported LNG from 15 countries in 2017, led by Qatar which accounted for 51 per cent, followed by Nigeria at 14 per cent and Australia at 10 per cent. The country is also diversifying its import sources to ensure uninterrupted and reliable LNG supply. Recently, the US, Algeria and Oman have also started supplying LNG to India. To further diversify sources, imports from Papua New Guinea, Brunei, Canada and Mozambique are also being considered.

LNG imports from the US started recently in March 2018, with an LNG ship departing from Cheniere Energy’s Sabine Pass facility in Cameron Parish to the Dabhol LNG terminal in Maharashtra. The supply was started under a 20-year sale purchase agreement  signed by India with US natural gas exporter Cheniere Energy.

LNG as a transport fuel

While traditionally, LNG has been used by the power, fertiliser and CGD sectors, the Ministry of Road Transport and Highways (MoRTH) approved LNG as an automotive fuel in 2017. This opened up the use of LNG for buses, trucks, railways and inland waterway barges. A successful pilot run of the first LNG-driven bus has already been carried out in Kochi. Indian Railways too is exploring the use of LNG as a fuel and has finalised a tender for converting mainline locomotives from diesel to dual fuel (LNG and diesel). The government is also evaluating the use of LNG in coastal shipping. Further, it has changed gas cylinder norms to enable LNG storage and distribution to LNG stations.

LNG infrastructure: Existing and upcoming

Given the high dependence on LNG imports, the expansion of the existing terminals as well as the setting up of new ones has become a necessity. Currently, India has four operational LNG terminals, at Dahej, Hazira, Dabhol and Kochi, which have a total capacity of 26.7 mmtpa.

There are also a number of LNG terminals which are either under construction or are at the planned/proposed stage. Together, the under-construction and planned/proposed terminals have a total capacity of 45 mmtpa.

The country has been witnessing a continuous rise in the imports of LNG. As per data available with the BP Statistical Review of World Energy, 2018, LNG imports increased from 22.2 billion cubic metres (bcm) in 2016 to 25.7 bcm in 2017. The top three exporters to the country were Qatar, Nigeria and Australia.

Key challenges and the way forward

One of the biggest challenges facing the LNG segment today is the lack of pipeline connectivity from the terminals. This connectivity is important as there isn’t significant demand for LNG (mega power plants or fertiliser plants) on the coast near regasification terminals.

Key issues in laying pipelines include environmental clearances, land acquisition and the manyfold increase in the cost of land. Most of the upcoming terminals are trying to address the connectivity issue by laying their own pipelines (for example, Ennore) or by engaging with transmission companies (such as GAIL and Gujarat State Petronet Limited).

At present, the global gas industry is in the early stages of significant market restructuring. According to experts, going forward it could take the shape of a dynamic market that resembles other major commodity markets. The duration of long-term contracts is decreasing from 25 years to 10-15 years and new pricing structures such as hybrid indexation are emerging.

Moreover, fragmented pricing of LNG could lead to complications. With several options available to buyers, there is a lack of long-term contracts. The share of spot/short-term imports in total LNG imports increased to over 55 per cent in 2016 from 43 per cent in 2012. This is hindering LNG market development in India as without long-term contracts, lenders lack the fi-nancial security to invest in liquefaction projects.

Overall, LNG imports are estimated to double over the next five years. The industry needs to adapt to the changing scenario. It will be essential to keep global trends in mind while expanding capacity and creating new LNG infrastructure.