India's march towards a “gas-based economy”

Having long held the tag of one of the largest crude importers in the world, India is increasingly looking to reduce its dependence on expensive and dirtier crude oil by adopting a much needed switch to natural gas.

 The Government of India, through the Ministry of Petroleum & Natural Gas, in recent years has implemented an aggressive approach of pushing the economy towards greater utilisation of gas in the country’s total energy mix - from the current 6.5% to 15% by 2030.

 And this is a much needed stratagem given that we import nearly 80% of our crude oil needs, with this import dependence expected to worsen even further as India ramps up its current refining capacity from c. 250 Million Tonnes/ annum (MMTPA) to an estimated 350 MMTPA by 2030, going up, by all accounts, to 450 – 500 MMTPA by 2040.

 Coming back to gas; the reliance on gas imports is not as skewed as that of crude, yet India is the world’s 4th largest LNG importer – nearly 50% of our gas needs are currently supplied by imported LNG (see graph). 

In 2019, the country consumed almost 62 Billion Cubic Meters (BCM) of gas, where total domestic gas production was 32 BCM and nearly 30 BCM had to be imported as LNG. As the Indian Government diligently implements a shift to gas while reducing dependence on coal and oil for its energy needs, gas consumption is expected to grow steadily, at a CAGR of 9%, over the next 10 years to touch nearly 135 BCM.

 A major contributing factor for this increased adoption of gas as fuel, both in domestic and industrial segments, has been the expansion in India's City Gas Distribution (CGD) sector. After 10 successful CGD rounds where licences were awarded to companies though a competitive bidding process, till date 229 licences (which represent almost 70% population of the country) are now covered under a gas grid system.

CGD has also seen strong growth in volumes since 2015 (at a CAGR of 16% between 2015 to 2020) primarily led by priority gas allocation for CNG and domestic PNG usage. Going forward we foresee the CGD market in India grow at a CAGR of nearly 10%, from an estimated 9 BCM this year to nearly 25 BCM by 2030.

 This thirst for additional gas will be satisfied, primarily, by imported LNG since domestic production does not have enough latent capacity to keep up with the constant rise in gas demand in the country. LNG imports will thus see a sharp uptick in the coming years as the country increasingly adopts gas to cater to not only existing industrial and domestic users, but at the same time looks to phase out polluting coal from its power generation sector (see headline graph).  

Accordingly, India has been ramping up its LNG import infrastructure with the addition of new receiving terminals to cater to this future demand curve:

 -       Early this year, GSPC brought onstream its 5 MMTPA LNG terminal at Mundra, in Gujarat.

-       In May 2019, IOCL commissioned the 5 MMTPA Ennore LNG terminal in Tamil Nadu, which is the first LNG terminal on the East Coast in South India

-       In June last year, Petronet LNG completed expansion of its existing Dahej LNG terminal in Gujarat by augmenting the existing 15 MMTPA capacity to 17.5 MMTPA.

-       H – Energy, part of the Hiranandani Group, is at advanced stages of commissioning a FSRU based terminal at Jaigarh, in Maharashtra.

-       Similarly, another private player Swan Energy is developing a 5 MMTPA FSRU based terminal at Jafrabad in Gujarat.

-       Atlantic Gulf & Pacific (AG&P) is also developing a 1 MMTPA FSRU based import terminal at Karaikal Port at Puducherry.

To provide last mile connectivity for this deluge of additional incoming capacity, India has also been investing heavily in expanding it gas pipeline and delivery infrastructure - operational gas pipelines in the country now stand at c. 17,000 KM and the Government is proactively encouraging the development of a National Gas Grid in the country, with investment from private companies. Domestic and foreign investments in the natural sector are likely to amount to $60 billion over the next five years.

 We thus anticipate that the demand for gas, supplied primarily by imported LNG, will grow at an exponential pace in the country. India will also look to increase its LNG imports on the back of record low prices and hitherto moribund industrial activity picking up from H2 of 2020 in the aftermath of Covid – 19 disruptions.