The share of regasified LNG (RLNG) in total natural gas consumption has been steadily increasing since 2012-13. While it was 38 per cent in 2012-13, it stood at 51 per cent as of December 2018. This growth can be attributed to several factors such as a consistent fall in domestic gas production and supply and an increase in regasification capacity.
Further, the Supreme Court ban on pet coke for industrial use in some northern states and the Gujarat High Court’s tightening of norms on use of coal gasifiers by ceramic companies in Morbi and Wakhaner is also expected to increase LNG demand. From 2014-15 to 2016-17, soft spot LNG prices provided a boost to RLNG consumption. Even though prices have remained on the higher side over the past one and a half years, the ban on pet coke as a fuel, construction of new fertiliser plants and roll-out of city gas distribution networks in new geographical areas is expected to drive RLNG growth in the near future.
Indian Infrastructure takes a look at the current LNG infrastructure, upcoming capacity addition, issues and challenges and emerging opportunities in the sector.
Operational and upcoming LNG infrastructure
The country’s current operational RLNG capacity is around 27 million tonnes per annum (mtpa), against a nameplate capacity of 33.5 mtpa. One of the major operational LNG terminals is Petronet LNG Limited’s (PLL) Dahej terminal in Gujarat. It has a current nameplate capacity of 15 mtpa, and this will increase to 17.5 mtpa after expansion works are completed by March 2019. By 2022, another 20 mtpa of LNG capacity will be commissioned at the terminal. The second operational LNG terminal is PLL’s Kochi terminal, with a nameplate capacity of 5 mtpa. The terminal’s capacity utilisation has been low owing to the lack of pipeline connectivity. However, by end 2018-19, once connectivity to Mangaluru is established, capacity utilisation is expected to increase to 40-50 per cent. The third operational LNG terminal is Ratnagiri Gas and Power Private Limited’s 5 mtpa Dabhol terminal. Its capacity utilisation has been lingering at around 60 per cent due to the lack of a breakwater which makes it impossible to operate the terminal during the five monsoon months. The breakwater, which will cost Rs 7 billion, is expected to be constructed before the 2019 monsoon season. GAIL (India) Limited has also set forth plans of doubling the capacity of the Dabhol terminal to 10 mtpa at an investment of around Rs 30 billion. The fourth operational terminal is Shell’s Hazira terminal which has a capacity of 5 mtpa. Tenders for doubling capacity of the terminal have already been issued. Owing to low spot prices, the terminal has been operating at high capacity utilisation rates over the past few years.
In addition to capacity enhancement plans of existing terminals, several new LNG terminals are also coming up at Mundra (5 mtpa), Ennore (5 mtpa), Jaigarh (4 mtpa), Dhamra (5 mtpa), Jafrabad (5 mtpa) and Chhara (5 mtpa).
Key issues and challenges
Two major consumers of RLNG, the power and fertiliser sectors are facing demand headwinds. The utilisation of the gas-based power projects continues to remain low given the shortfall in the supply of domestic natural gas and the reluctance of power distribution companies to procure power generated using imported RLNG. Also, the cost of generation for domestic gas-based projects has witnessed an increase in line with the increase in gas prices over the past 12 months.
As the fertiliser sector is heavily subsidised, the government would want to allocate cheaper gas to this sector due to fiscal considerations. Therefore, over a period of time, RLNG is expected to be substituted by domestic gas. The government has introduced gas pooling for the urea industry. However, the use of RLNG in the revival of urea units will result in a higher pooled price for the entire sector. In a rising crude oil price scenario, this is expected to result in higher RLNG prices.
Further, LNG demand from industrial and commercial segments is also expected to be volatile as they are facing strong competition from alternative liquid and solid fuels. Pipeline connectivity also remains a key issue for some of the existing and most of the new LNG terminals. Therefore, faster roll-out of pipelines is key to optimal utilisation of regasification terminals.
Conclusion
The LNG segment has significant growth potential. LNG truck, rail and ship distribution; LNG- fuelled vehicles and inland waterway barges; LNG-powered locomotives; bunkering services; LNG ships; LNG storage and reloading services; and small-scale regasification terminals will be the key demand drivers in the medium term. Despite the potential, the market is expected to be slow to develop and will require concerted marketing efforts. w
Based on a presentation by K. Ravichandran, Senior Vice President and Co-Head, Corporate Ratings, ICRA, at a recent India Infrastructure conference