Despite the liquefied natural gas (LNG) market being constrained in the recent past, India has maintained its position as the world’s fourth largest buyer of LNG after Japan, South Korea and China.
The market first experienced strong fluctuations in 2020, triggered by the pandemic-induced constraints on the economy. However, a year later, owing to lower domestic production, coupled with higher demand and lower prices at a major distribution centre, Henry Hub, imports increased by 66 per cent year on year to 8,181 mmscm. The trend reversed in 2022, as imports fell further due to escalating global prices and a rise in domestic production. In continuation of the diverging trend, in April 2023, the total imports increased, owing to the softening of the Asian spot LNG prices in 2023, which led to a resurgence of interest from Indian buyers.
The current upsurge in demand is being propelled by key sectors such as fertilisers, power, city gas distribution, refinery and petrochemicals. Considering the present market dynamics and demand, India is well positioned to experience a substantial increase in its LNG imports by end 2024. Due to the falling LNG costs and the growing demand for power generation, India is once again prioritising LNG imports. Industry experts forecast a substantial rise in imports compared to the previous year, with projected growth rates ranging from 7 to 8 per cent. This estimated increase is indicative of the country’s rising energy demands and the urgent need to diversify energy sources, particularly by leveraging existing domestic LNG facilities.
Underutilised infrastructure
India currently operates seven LNG import facilities with a combined capacity of approximately 47.7 million tonnes per annum (mtpa). These facilities include Petronet LNG’s Dahej and Kochi terminals, Shell’s Hazira terminal, Dabhol, Ennore, Mundra and Dhamra LNG terminals. The operational efficiency of these terminals varied significantly during 2023-24.
The 17.5 mtpa Dahej terminal demonstrated the highest utilisation rate at 95.1 per cent, while the 5.2 mtpa Hazira terminal operated at 30.3 per cent capacity. Among other facilities, the Dabhol LNG terminal (5 mtpa) achieved 42.7 per cent utilisation, followed by the Dhamra LNG terminal (5 mtpa) at 27.4 per cent, Kochi LNG terminal (5 mtpa) at 20.6 per cent and Ennore LNG terminal (5 mtpa) at 18.3 per cent.
LNG infrastructure expansion faces significant challenges in India, as evidenced by the delayed operationalisation of several regasification projects. Hindustan Petroleum Company’s (HPCL) Chhara LNG terminal in Gujarat, despite its completion over a year ago, remains non-operational due to pipeline connectivity issues. HPCL targeted early 2024 for commissioning, but the terminal is yet to commence operations. However, in an effort to expedite operations, the Gujarat State Petroleum Corporation has released a tender to buy a commissioning cargo for the Chhara terminal.
AG&P’s floating storage regasification unit (FSRU)-based Karaikal LNG terminal, initially slated for 2021 commissioning after breaking ground in 2020, has made minimal progress. The company is now considering relocating the terminal. H-Energy has also encountered obstacles in establishing multiple LNG terminals, with its Jaigarh facility experiencing a notable setback when Norway’s Hoegh-provided FSRU departed abruptly, citing contractual breaches.
However, despite these setbacks, the eventual operationalisation of these facilities holds significant potential.
Further, in June 2024, ONGC and Indian Oil Corporation Limited signed an agreement to set up a new LNG plant near the Hatta gas field in the Vindhyan basin. An MoU has been signed for the same. This LNG facility will significantly enhance the Vindhyan basin’s status – upgrading it from a Category II basin to a Category I basin.
Reducing import reliance
India needs to prioritise the diversification of its energy sources to achieve energy security and reduce dependence on the expensive imported LNG. In a way, India’s reliance on external sources for LNG has made the country’s energy security susceptible to global events. For instance, LNG supply to India was disrupted due to the Russia-Ukraine conflict. Moreover, a subsidiary of the Russian energy major Gazprom, Gazprom Marketing and Trading Singapore, now a German company called Sefe Marketing and Trading, had defaulted on supplying eight shiploads of LNG under a 20-year deal.
In June 2024, LNG imports reached a nearly four-year peak, driven by multiple factors. Gas-based power plants operated at significantly higher capacity utilisation rates than their typically subdued levels, responding to a surge in electricity demand, precipitated by severe heatwave conditions. This uptick in LNG imports can be attributed to several key factors – first, the favourable pricing and abundant availability of LNG in the international spot market, and second, the government’s concerted efforts to boost the power production to meet the heightened demand during summer, amidst severe heatwaves. These combined elements led to a notable increase in LNG purchases. This development has highlighted the flexibility of gas-based power generation in responding to short-term demand fluctuations and the importance of maintaining a diversified energy portfolio to ensure energy security.
However, concerted efforts are still needed to minimise the dependence on imported LNG, considering previous supply defaults. This could be achieved by augmenting the domestic gas supply by diversifying energy sources. Investing in coal bed methane and coal gasification technology, for instance, could enable efficient use of the abundant domestic coal reserves. At Talcher, India’s first urea plant utilising coal gasification technology is being revamped. Once operational, it is expected to substantially reduce the LNG import bill. In addition, biomass gasification has the potential to decrease reliance on imported LNG for electricity generation and fertiliser production.
Future outlook
As a market that has shown a straying pattern in the recent past, the outlook remains uncertain with operational challenges affecting five of the seven existing terminals. These challenges stem from inadequate supporting infrastructure and fluctuating natural gas demand.
Of India’s total 47.7 mtpa regasification capacity, only two terminals have maintained consistent operations since their establishment, Petronet LNG’s Dahej facility (17.5 mtpa) and Shell’s Hazira LNG terminal (5.2 mtpa).
Despite the majority of the facilities not functioning at their full capacities, growth in domestic output has been steadily increasing over the years. In the near future, the onset of the monsoon is likely to reduce the power demand, rendering imports a less attractive option, especially with anticipated higher spot prices. Therefore, it is crucial to increase and improve domestic production capabilities.
Over the years, the government has implemented strategic initiatives aimed at augmenting domestic production through new exploration ventures and the application of enhanced recovery techniques in existing fields. These measures are further aimed at maintaining a stable domestic supply. Regulatory measures including adjustments to domestic pricing mechanisms, efforts to stabilise imported gas prices, ensuring adequate LNG capacity and expanding the gas pipeline infrastructure have also made the environment favourable to pursue domestic production on a large scale.
Collectively, these actions are expected to facilitate a transition towards a greater share of natural gas in the country’s energy mix. This multifaceted approach reflects a comprehensive strategy to enhance energy security, promote sustainable growth in the natural gas sector and optimise the balance between domestic production and imports.
Harman Mangat
