India: the great gas demand hope
With high import-dependency and rising gas demand, India is a prime target for LNG exporters. But price and infrastructure will decide how quickly the market develops
It's the country that many natural gas exporters are waiting for. India, a fast-growing economy with the world's second-largest population, seems destined to play a decisive role as a sink for excess supplies, believe hopeful exporters. A period of weak global liquefied natural gas prices can only help the fuel's rise.
The potential is great. Shell reckons India's gas market will grow sixfold by 2030. BP forecasts consumption of the fuel will rise from 4.9bn cubic feet a day in 2015 to 12.8bn cf/d by 2035—growth of 162%. Gasification of the economy is now policy. The government wants the share of gas in the energy mix to reach 15% by 2030, more than double its level now.
The forecasts should whet the appetite of gas exporters under pressure from an emerging glut of supply in LNG markets. Domestic Indian supply will be unable to keep up with consumption growth. Platts, a pricing agency, reckons Indian LNG imports will need to rise by 10% a year over the next few years, reaching 30m tonnes a year by 2020, compared with 19m tonnes in 2016.
But it might not be as straightforward as that. Analysts say that despite India's best intentions around increasing gas use, huge upstream, midstream, and downstream investments will be needed as well as the continued will to enact the necessary changes to decrease reliance on coal and oil. The total investment requirement could run to 0.65 trillion rupees ($10.21bn) in gas-import and pipeline infrastructure in the midstream, according to Mumbai-based research agency Crisil Research.
The government is showing some will. It recently liberalised its gas markets—part of a widespread strategy to realign the energy sector. Petroleum minister Dharmendra Pradhan recently told media that India would also aggressively pursue overseas acquisitions, build strategic oil reserves and step up domestic exploration.
Besides the move to enhance gas production, the government is promoting a nationwide gas grid and setting up gas infrastructure. The federal government has already approved the use of imported gas for power generation and fertiliser production. India's ministry of road, transport and highways also recently gave the green light for the use of LNG as fuel for road vehicles.
$88bn - India's expected oil-import bill in 2017-2018
Cheap LNG and widespread availability of cargoes should help. India's import capacity is just 27m t/y at present, but the government wants capacity to nearly double to 47m t/y in the next few years. India already buys around 7.5m t/y from Qatar, paying $13 per million British thermal units under a 25-year contract. Future contracts should be cheaper—prevailing prices in the spot market are now just $6-7/m British thermal units and are expected to fall further.
This will be crucial. Geena Chatterji, an analyst at Wood Mackenzie, says Indian LNG demand remains "very price sensitive". For the share of gas to reach the government's target of 15%, she says prices will need to remain below $8/m Btu "for a long time". Wood Mackenzie expects Asia spot prices to drop below $5/m Btu by 2019 and remain at around that level until 2022. "This will be an attractive price range for Indian LNG buyers."
Aside from keeping prices low, exporters targeting India will also need to compete against local suppliers, assuming the government is able to stimulate more upstream investment and production. "Although cheaper LNG would encourage more gas demand in the coming years, the government's long-term objective is to develop more domestic reserves rather than increase its dependency on LNG," says Chatterji.
India's oil production fell to a seven-year low of 0.856m b/d last year, according to BP—a year-on-year drop of around 2%. Domestic gas production plunged 6%, from 2015's level, down to 2.7bn cf/d.
Government data suggests India's crude-import bill could surge by 26% in the 2017-2018 fiscal year to $88bn. That's up from around $70bn last year.
Qatar has been India's preferred gas supplier so far, accounting for 61% of total LNG shipments to the country. It is followed by Nigeria—which has a 14.7% share of the total. The remaining 24.3% is shared by eleven countries. Australia and the US are fast emerging as viable alternative suppliers.
India's four liquefied natural gas terminals are the Dahej and Hazira facilities—both in Gujarat—Dabhol in Maharashtra, and Kochi, in Kerala State. Combined capacity is 27m t/y. Another 20.5m t/y of capacity is planned, and the gas-pipeline network is also expected to double to 30,000km in the next few years. India also expects to build three more LNG terminals on its east coast.