A cleaner environment, less pollutant energy, a sustainable living model are some of the ambitious target set by the government at the centre. This is both applicable for the industry and for the people of the country. On one hand, making available cooking gas to the rural areas has fetched a good response and is aimed at cleaner fuel; and on the other hand, aims at providing natural gas for industrial, and commercial use.

But, Is India´s gas infrastructure ready yet?
Lack of infrastructure and non-availability of gas supply is a concern raised by the industrial community repeatedly. The answer may not be in the affirmative as it is true that the country is still fighting to put in a gas infrastructure.

However, there are green shoots. The best example is the statement made by Oil and Gas Minister Dharmendra Pradhan at the beginning of 2016, where he stated that India would increase the share of natural gas in the country´s energy mix. The target is to make the gas share to 15 per cent in next three to five years, from the current levels of six to seven per cent. Globally, gas contributes 24 per cent of the world´s energy mix.

This will be possible only through a simultaneous process of increasing the domestic production and import of LNG at a more competitive price. In the last quarter of 2016, the Minister has emphasised on the fact that the imports doubled in the coming years. To put it in perspective, the target is to increase the LNG import to 50 million tonnes by 2022. Currently, the import capacity is 21 million tonnes (MT).

Global supply
As per the global data of LNG importing countries, India is in the top five. India imports 5.8 per cent of the total LNG produced in the world. In 2014, India imported 5.7 per cent.

Global Gas Union report says that global liquefaction capacity is around 308 million tonnes/year (tpy) as of 2015, compared to the re-gasification capacity of 777 million tpy. The good news is that the LNG pricing is gradually moving from crude oil indexation to gas-hub linked prices, but two-thirds of LNG is still sold at prices related to crude oil.

Infrastructure
Currently, the country has four operational LNG terminals in Dahej, Hazira, Kochi, and Dabhol. And Dahej happens to be country´s first LNG terminal. The four terminal put together has a re-gasification capacity of 25 MT per year. The delayed project, sluggish demand, lack of gas connectivity has resulted in the reduced capacity utilisation.

According to India Brand Equity Foundation report, ´India is expected to be one of the largest contributors to non-OECD petroleum consumption growth globally. Domestic refiners´ import of crude oil increased 9.1 per cent year-on-year to around 18.81 million metric tonnes during August 2016. Domestic LNG demand is expected to grow at a CAGR of 16.89 per cent to 306.54 MMSCMD by 2021 from 64 MMSCMD in 2015.´

The increase in demand seen in gas in the last decade is primarily due to its availability, distribution infrastructure, the savings from the usage of natural gas in place of alternate fuels, the environment-friendly characteristics. However, the opening fanfare started losing its sheen as the gas infrastructure development couldn´t keep its pace with the growing demand. It is projected that India´s demand for gas will go up in the coming years.

Power and fertilizer sectors are the two biggest market drivers for natural gas in India, and these two areas continue to account for more than 50 per cent of gas consumption. The country´s six major regional natural gas markets are northern, western, central, southern, eastern and the north-eastern market. The western and northern markets currently have the highest consumption due to better pipeline connectivity.

LNG imports jumped another 15 per cent during 2015-16. The biggest increases occurred in February and March 2016, up 63 per cent and 58 per cent respectively from the corresponding months a year earlier.

Gas-based power capacity in India is 24,150 MW, of which 14,305 MW faces supply issues. Nine stranded power plants with an installed capacity of 5,942 MW was allocated with 7.62 million standard cum/day (MMSCMD) of R-LNG. Power produced from these plants were sold at or below Rs 4.70/unit. Power generated from LNG would cost Rs 7-9/unit depending on gas price and plant load factor.

Commenting on the same, Deepak Mahurkar, Partner and Leader Oil & Gas Industry Practice, PwC feels, ´Gas pricing policy re-look, more domestic gas, and many folds rise in LNG infrastructure will be some of the changes needed to cause supply of needed volumes in sustainable manner.´

According to a paper presented by Dr AK Balyan, former MD and CEO, Petronet LNG,, ´In future, the natural gas demand is all set to grow significantly at a CAGR of 7 per cent from 226.7 MMSCMD in 2012-13 to 713.5 MMSCMD in 2029-30. This demand represents the realistic demand for natural gas in India.´

He further added that gas based power generation is expected to contribute the highest, in the range of 38 per cent to 49 per cent, to this demand in the projected period (2012-13 to 2029-30). The share of fertilizer sector in the overall gas consumption in the country is expected to go down from 26 per cent in FY 2013 to 15 per cent in FY 2030 owing to higher growth in other sectors. The contribution to the overall demand from the CGD sector is set to increase from 7 per cent to 12 per cent during the projected period.

LNG imports in the country have seen substantial increase in the past decade. In 2004-2005 the imports were 5 MT p.a. which in 2016 touched 21 MT p.a. Achieving the target seems to be an easy task as there is enough capacity addition in the pipeline. However, whether all this will come on stream on time remains a question mark.

Gas Authority of India Limited (GAIL) is responsible for developing gas Infrastructure, but along with its primary role has also entered into gas marketing. GAIL is in charge of the developing the gas based economy called the Urja Ganga.

While the capacity utilisation of Dahej terminal in 108.9 per cent, Kochi is just 3.4 per cent. Blame it on the lack/failure in developing the infrastructure to transport gas. Hazara is 67 per cent utilised and on the other hand Dhabol utilisation is 75 per cent. According to GAIL, to get the Kochi terminal out of limbo, they have started the construction of the Kochi-Mangalore pipeline.

Presently, there are three major pipeline entities in gas transportation across the country namely GAIL, RGTIL and GSPL. GAIL is operating HVJ and DVPL trunk pipeline to evacuate domestic gas, JV gas from ONGC and R-LNG from PLL, consisting about 11,077 km (about 68.71 per cent) including the Dabhol-Bengaluru pipeline.

RGTIL is operating 1,469 km (about 9.11 per cent) East West pipeline (EWPL) to evacuate gas from KG-D6 in Andhra Pradesh. This pipeline passes through Andhra Pradesh, Maharashtra and Gujarat and integrated with GAIL´s and GSPL´s network to reach the northern and western Indian markets.

GSPL is mainly focused in Gujarat, consisting about 2,600 km (about 16.13 per cent). In addition, GAIL also operates regional gas pipeline networks across India in Maharashtra, K.G.Basin, Cauvery Basin and south Gujarat.

Supply of Natural Gas
Data presented in Parliament by Pradhan shows that the supply of natural gas in India was projected to grow far faster than demand. It also shows that domestic gas production was to increase 37.5 per cent by 2017-18, with demand growth being 22 per cent in that period.

India´s natural gas demand is expected to grow from the current 473 MMSCMD, to 494 MMSCMD in 2017-18, and 523 MMSCMD in 2018-19.

While LNG imports meet the supply in the domestic market, part of it also come from KG-D6, Mumbai off-shore, Cambay Basin, Ravva Offshore, KG-Basin, and the Cauvery basin. Now we are looking at an increase in both imports and domestic production output. The total supply of natural gas is expected to grow at a CAGR of 7.1 per cent from 2012-30, reaching 375 MMSCMD by 2021-22, and 448 MMSCMD by 2029-30. India´s gas production is expected to touch 90 billion cubic metres (BCM) in 2040, from 35 BCM in 2013. Gas pipeline infrastructure in the country stood at 15,808 km in December 2015. And in 2016 it has expanded to 16,121 km.

Challenges
Sourcing of reliable and cost-effective LNG remains a challenge for India. The country was primarily dependent on the Middle east and MENA region for LNG supply, but has of late started scouting the US, Australia, and Russia for LNG supply. To this end, the India-Australia LNG sub-working group for collaboration, is looking at developing mutually acceptable long-term fixed price contracts.

Lack of LNG carriers is another major hurdle faced by the segment. A developed LNG shipping sector would meet domestic requirements but also would serve global markets. Insufficient gas pipeline network connecting terminals with customers is another crucial challenge.

Here, under-utilisation of the Kochi LNG terminal is a good example.

Investments
In an endeavour to encourage exploration to explore the unexplored oil and gas fields in India, the government has allowed 100 per cent Foreign Direct Investment (FDI) in natural gas, petroleum products, and refineries, among others. Today, it attracts both domestic and foreign investment, as attested by the presence of Reliance Industries Ltd (RIL) and Cairn India.

As per the to data released by the Department of Industrial Policy and Promotion (DIPP), the petroleum and natural gas sector attracted FDI worth $6.67 billion between April 2000 and March 2016. Investments in oil and gas sector are likely touch Rs 2.5-3 trillion ($37.28-44.73 billion) over the next few years, which will help raise the share of gas in the country´s primary energy mix to 15 per cent.

In addition to this, some study papers suggest that, Investing in foreign oil and gas, especially gas assets in Russia, Iran, and Mozambique, could be critical to meeting domestic Indian demand. The same is true regarding investment in overseas liquefaction projects.

Japanese and Chinese companies have already invested in liquefaction plants in Australia. Indian companies should continue to proactively invest in liquefaction in countries like the US, Australia, Iran, Mozambique, Nigeria, and Algeria. The country´s existing natural gas infrastructure also needs expansion and upgrade.

Conclusion
Pradhan, says India´s oil demand likely to grow at a CAGR of 3.6 per cent to 458 million tonnes of oil equivalent (MTOE) by 2040, while demand for energy will more than double by 2040 as economy will grow to more than five times its current size. Domestic gas production is expected touch 90 BCM by 2040. The demand for natural gas will grow at a CAGR of 4.6 per cent to touch 149 MTOE.

Global LNG prices are expected to rule low in the five years´ horizon. That opens up the side opportunity basket for India to pocket the best long term contracts. China has already made smart moves in the previous low price regime.

- RENJINI LIZA VARGHESE