Demand concerns loom over India's liquefied natural gas expansion spree

From 37.5 mtpa, India to expand its capacity to 74 mtpa in a decade

Prime Minister Narendra Modi’s recent visit to the United States was marked by a $2.5-billion long-term liquefied natural gas (LNG) deal. Though the government expects a surge in LNG demand, industry players are sceptic of natural gas use in India’s energy basket. 

Gas pipeline capacity utilisation is still as low as around 40 per cent while the existing LNG terminals running at 58 per cent capacity.

India has drawn a roadmap to double its regasification capacity from 37.5 million tonne per annum (mtpa) to 74 mtpa in the next 10 years at an investment of around Rs 30,000 crore, excluding the cost of jetty and pipelines. “Lower capacity utilisation of below 10 per cent in Kochi and Dhabol has brought down the overall average. There are plans to double the capacity but the major concern is on demand side. If we have to maintain the current level of capacity utilisation, demand from power sector should materialise,” said a senior government official.  At present, India has five terminals including, Dahej, Hazira, Dabhol, Kochi, and Ennore.

While Petronet LNG’s Dahej terminal has crossed 100 per cent capacity utilisation in some months, Royal Dutch Shell’s Hazira is running at around 95 per cent. 

“Given the demand growth in natural gas in India, the RLNG demand is expected to be around 30-35 mtpa in the next 10 years. If you look at a steady situation, globally, LNG terminal capacity utilisation is around 50-55 per cent. In that scenario, going by the global average, for a demand of around 35 mtpa, we will be looking at a capacity of over 70 mtpa,” said Anirban Mukherjee, partner and director, Boston Consulting Group (BCG). 

 

Mukherjee added this demand may further increase if the power sector too comes.  As per estimates, investments to the tune of around Rs 3,000-4,000 crore is required to build a 5 mtpa Floating Storage Regasification Unit (FSRU). 

In an effort to revive 25,000 mega watt (Mw) of stressed gas-based power plants, the ministry of petroleum and natural gas along with the ministry of power is working on an e-RLNG scheme. Based on this, pooled domestic and LNG gas may be auctioned to power sector, while power tariffs will be subsidised. Though a similar scheme was launched in 2015, it was later discontinued.  According to industry experts, these gas-based power plants will become competitive at a spot price of $5 per million metric British thermal unit (mmBtu) — adjusting landing and transportation too.  However, India’s ability to source at that price on continuous basis will be critical for the power sector.  

During 2018-19, India imported 21.7 mt LNG, around 46.4 per cent of the total gas consumption in the country. During the April to August 2019, this has increased to 51 per cent at around 10.18 mt. According to the government estimates, a major swing in gas consumption in India is set to come from city gas distribution sector, because of which the LNG consumption may increase from 73 million metric standard cubic meter per day (mmscmd) to around 227 mmscmd by 2025.  After the completion of the ninth and tenth round of CGD bidding, natural gas is expected to reach around 70 per cent of the country’s population. “Swing here is not CGD. It is a good addition. For demand increase to materialise, power sector demand too has to come in,” Mukherjee added.