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Indian LNG imports up 54pc in five years

While LNG volumes are increasing rapidly, the uneven distribution of infrastructure means that bottlenecks remain a barrier to growth

While India cannot match the stellar growth of China’s LNG imports over the past five years, it has nevertheless seen exceptional growth over that period. Such has been the rate of growth that, when the volumes used internally by producers are excluded, LNG (or regasified LNG, RLNG, as it is known in India) supplies more than half of the nation’s gas: 52pc versus 48pc, according to the Ministry of Petroleum & Natural Gas. 

After several years during which imports flat-lined, they began to take off in 2015, just as they did in China, as Figure 1 in the proceeding article shows. The compound average annual growth rate since then has been 12pc, with imports in 2018/19 up 54pc on 2014/15. 

The numerous LNG import projects under development and being planned highlight expectations within the country that strong growth will continue for the foreseeable future. At the start of 2019, India had four operational terminals with a nominal combined regasification capacity of 32.4mn t/yr; actual capacity was 29.1mn t/yr because the Dabhol terminal, with capacity of 5mn t/yr, is restricted to 1.7mn t/yr because it still lacks the breakwater required to enable year-round deliveries. The Kochi terminal has been under-utilised because evacuation pipeline capacity has been slow to develop, though construction has been under way for some time and a first phase of capacity is now flowing gas. 

Imports galore… in the west 

Two new projects, the first since 2013, started up during the year—the 5mn t/yr Ennore terminal in Tamil Nadu and the 4.9mn t/yr Mundra terminal in Gujurat—taking actual capacity to 39mn t/yr. 

In fiscal year 2018/19, India imported 21.7mn t of LNG. Growth in 2019/20 of 12pc would lead to imports of 24.3mn t, implying LNG import capacity utilisation of 62pc. So, import capacity per se will not be a constraint to further growth, though the locations of the terminals and the availability of pipeline connections across the country will be. 

Of the six operational terminals, five are on the west coast and only one on the east coast. Indeed, much of the capacity is in Gujurat, the state where Narendra Modi was chief minister before he became the nation’s prime minister in 2014. The exceptional economic performance of Gujurat, where gas has a much higher share of primary energy consumption than elsewhere in India, was a factor in Modi’s popularity during the campaign for the 2014 general election. 

Another four terminals are under development, which—along with the 3.3mn t of capacity that will become available when the Dabhol breakwater is eventually completed—should boost capacity by another 20.1mn t/yr by the end of 2021, taking the total to 59.1mn t/yr. That said, delays would not come as a surprise, given India’s poor record of completing LNG import projects on time. Moreover, only 9.9mn t/yr of this incremental capacity will be on the east coast. Various other projects have been mooted but have yet to reach FID. 

Price sensitivities 

A key driver in the growth of India’s LNG imports was the collapse in LNG prices from the stratospheric levels of 2011-14, a collapse that followed the oil price crash of late 2014. More recently, this has been compounded by the unusually low level of spot prices prevailing because of the emergence of global oversupply as new capacity came on stream in Australia, the United States and Russia—overwhelming even China’s hunger for gas. 

The two largest gas-consuming sectors in India—fertiliser production and electricity generation—are notoriously price-sensitive and the price of RLNG is not controlled by the government but negotiated bilaterally by sellers and buyers. The disparity between prices in oil-linked long-term contracts and spot prices has led India’s big LNG buyers to seek renegotiation of contract terms, with some success. 

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