India wants gas to power economic growth

MUMBAI // India is so committed to getting its population to switch to natural gas that a few weeks ago the government launched a catchy Bollywood-style song to promote the fuel.

India’s appetite for liquefied natural gas (LNG) is set to surge over the coming years, driven by the country’s need for power, sharply lower prices of the fuel and a push by the government to increase the usage of gas as a proportion of its overall energy mix. Natural gas is considered to be a relatively clean fuel.

“India is now emerging as the largest driver of global LNG demand growth,” according to a report published by financial group Citi this month.

India is the fourth-biggest importer of LNG after Japan, South Korea and China with its imports coming primarily from Qatar.

The country’s expanding economy and urbanisation are driving India’s rising energy needs.

Demand has been rising rapidly and Citi forecasts that India’s LNG demand could almost double over the next four years amid a glut in global supply. It increased from 14 million metric tonnes to 16 million tonnes in the last financial year, which ended in March, over the previous financial year, and it has the potential to reach 30 million tonnes in four years, according to the bank. By 2025, demand is set to increase to 50 million tonnes a year.

“The government is also doing its bit, putting in place measures to expand gas infrastructure, including smart cities, new pipelines and terminals,” Citi says. It adds that the “oncoming glut” in LNG globally means that it is likely to be a buyers’ market over the next few years. LNG spot prices are down by 60 per cent compared with two years ago.

Power is the biggest driver of the demand for LNG in India, serving as a substitute for coal in electricity generation, and it is also used in the production of fertilisers. The bank expects India’s dependence on gas imports, which have risen to 45 per cent from 23 per cent over the past five years, to rise to 51 per cent over the next three years.

Last month, Dharmendra Pradhan, the country’s minister for petroleum and natural gas, launched the #Gas4India campaign to increase the country’s use of gas. The campaign has a Facebook page and theme tune.

“Besides the move to enhance gas production, the government is promoting a nationwide gas grid and setting up gas infrastructure,” Mr Pradhan says. “New LNG terminals are also coming up. India has entered into long-term contracts and acquired assets abroad to ensure the unhindered supply of gas at reasonable prices.”

The aim is to more than double the share of natural gas in India’s energy basket to 15 per cent from 6.5 per cent. The country is under pressure from the international community to reduce its carbon emissions and a switch to gas could help in this process.

“India is well behind most of its developed and developing nation counterparts in terms of gas usage, especially at the retail level. Almost two-thirds of India’s gas is still consumed by the fertiliser and power industries,” according to Citi. In Thailand, for example, natural gas comprises about 40 per cent of the energy mix, while in Argentina it is just below 50 per cent, while the UAE is at about 60 per cent.

“For instance, most of rural India still relies on traditional sources of cooking fuels – wood, cow dung, kerosene, biomass – while urban India primarily relies on liquefied petroleum gas,” according to Citi. “While natural gas can be a potent source of energy, which can be used for various purposes such as cooking, transportation, industrial uses, etc., this would need to be driven by enabling gas supply to households as well as industries, for which a robust city gas distribution network would need to be set up.”

Qatar is by far the biggest supplier of LNG to India, at 8.5 million tonnes a year.

RasGas of Qatar supplies the fuel to India’s Petronet under a 25-year contract, which started in 2004. This year, India managed to renegotiate the price to US$5 a unit from $12.

“They lowered the price and increased the volume, so it sounds like a healthier relationship,” says Akshay Randeva, the director of strategy and business intelligence at the Qatar Financial Centre Authority.

Exporters of natural gas are facing increased competition amid heavy global supplies. Countries such as Australia and the US are also major exporters of LNG. Projections by the International Energy Agency show that Australia and Africa will each be providing more LNG to India than Qatar by 2030.

It emerged earlier this year that India is looking at setting up an LNG terminal in Iran to ship natural gas from Iran to India.

“Despite its massive gas reserves, Mena’s role in the global supply of natural gas is diminishing,” according to Apicorp Energy Research. “A major factor behind this trend is the increasing amounts of LNG becoming available from new sources of supply, forcing the major LNG exporters in Mena to adjust their export strategies in order to maintain their market share in Europe and Asia.”

But India’s lack of infrastructure to support the natural gas segment is a hurdle, analysts say.

“The major challenges are the port facilities to discharge and process the LNG,” says Mike van Croonenburg, the chief executive of Petrol Storage Broker, a project-management consultancy.

“The onshore pipeline infrastructure needed in order to transport the natural gas to the end users is also a major infrastructural challenge.”

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