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Press Release [FREE Access]
Petro Intelligence » Gas Storage Plan: Does It Look Feasible?

By R. Sasankan

Generations of children have grown up feasting on Aesop’s fables – that wonderful compendium of moral instruction designed to inculcate simple virtues in the wide-eyed broods of innocence. One of the most popular tales is the one about the Ant and the Grasshopper. The tale posits the industriousness of the ant against the wanton indolence of the grasshopper. The ant slaves all through the summer building a hoard of food that will see it through a harsh winter. The grasshopper, on the other hand, plays the fiddle all through the year until it comes up smack against the harsh reality of a terrible winter. It begs the Ant for food and gets a dressing down.

"I didn't have time to store up any food," whined the Grasshopper; "I was so busy making music that before I knew it the summer was gone."

The Ants shrugged their shoulders in disgust.

"Making music, were you?" they cried. "Very well; now dance!" And they turned their backs on the Grasshopper and went on with their work.

The Ants have cottoned on to the idea of protecting their future against uncertainty and adversity – though today’s kids might recoil with disgust at the Ant’s lack of empathy for the grasshopper’s misery.

But moral tales aside, there seems to be some indication that the India is seriously considering the virtue of changing its behaviour from a grasshopper to an ant – at least when it comes to building a storehouse for natural gas.

A recent media report said India was exploring the possibility of building strategic natural gas storage facilities in the country on the lines of strategic crude oil reserves in a bid to have a large gas stockpile that could be utilised in emergencies and supply disruptions, and serve as a hedge against extreme price volatility in the international market.

Petroleum secretary Pankaj Jain said the idea was at a preliminary stage and a few global players specialising in gas storage had been approached to develop the proposal.

“We don’t have (strategic) gas reserves…We probably need some help at some point. But it is something that we are looking at…We have reached out to a few (global companies with gas storage expertise),” Jain told reporters but declined to name any international players that the petroleum ministry or public sector oil and gas companies might be in talks with.

A statement that comes from the secretary in the Ministry of Petroleum and Natural Gas cannot be brushed aside as mere wishful thinking. But a few energy experts we contacted were puzzled by the statement and acknowledged that they could not understand what precisely the secretary had in mind on the strategic gas storage issue.

It is clear that the gas storage plan has been inspired by the already existing strategic crude oil storage. Indian Strategic Petroleum Reserves Ltd (ISPRL) has an emergency fuel storage of 5.33 MMT (million metric tons) or 36.92 million barrels of strategic crude oil, enough to provide 9.5 days of consumption. This capacity is being expanded by another 6.5 million tonnes in the second phase of the project.

Journalists are not energy experts. I have been reporting on India’s oil and gas sector for many years but I too could not grasp the logic behind the move. The first question that came to my mind was: Can the Indian consumer afford such a strategic gas storage capacity considering the cost involved in storing costly LNG?

The price of LNG keeps fluctuating wildly in the spot market. India’s domestic natural gas production cannot even meet half of the demand. Of late, with RIL-bp field in KG basin commencing production, domestic natural gas production has gone marginally up. But the field  is of medium size and, therefore, cannot last for too long.

Historically, natural gas price hit an all- time high of $ 15.78 mmBTU in December of 2005. In 2014, it touched a low of $ 8 /mmBTU. But in the wake of the Ukraine war in March 2022, LNG price touched an all-time high of $ 59/mmBTU.

The Indian market has demonstrated a consistent trait since LNG became available as a fuel source. Even when the LNG price was low in the spot market, a section of the Indian consumers -- more particularly the power sector -- preferred to shy away from it. Quite a few LNG-based power plants remained idle as consumers were not prepared to buy costly LNG-based power even though India is battling severe power scarcity in certain pockets.

Let us now turn to the plight of the LNG import and regasification terminals on the west and east coast. Except for the two terminals at Dahej and Hazira in the state of Gujarat, capacity utilisation at the other terminals refuses to cross 20 per cent. The Dahej terminal has the advantage of handling almost the entire LNG supplies from Qatar under the long-term contract with Petronet LNG Ltd.

This is the stark market reality. In such a situation, the creation of a costly strategic gas reserve – accentuated by regasification costs – will complicate the economics of the endeavour, especially when the government is unlikely to subsidise it.

The main question is how will India store its imported LNG? Natural gas can be stored underground in depleted reservoirs in oil and gas fields, and in natural aquifers and salt caverns. It can also be stored in the gaseous state as well as in the form of LNG in large over-ground tanks.

Will India re-gasify LNG to store natural gas in underground strategic gas storage? If such a gas storage is considered so crucial, it might be more sensible to stop tapping some of the difficult domestic fields and keep that gas in situ as the country’s strategic gas reserve. For this gas, the Indian consumers are forking out more than they pay for imported LNG. Why create new storage at an added cost? India is a price-sensitive market and will continue to remain so.

Long- term LNG contracts seemed to have served India’s purposes better. If these deals are negotiated honourably without the element of kickbacks, India can achieve the objectives in a more optimal manner. India’s contract with Qatar has been a brilliant arrangement. The latest deal with UAE’s ADNOC Gas looks equally promising. The deal with Russia can be enlarged as President Vladimir Putin is keen to expand commercial relations with India.

Still, if the country’s energy pundits are keen on a strategic gas storage, the most sensible option will be to persuade large gas producers to create storage facilities in India. There should be only one condition attached: the Indian government should have the freedom to dip into the reserve in times of emergency by paying the prevailing rate. This way India can avoid investment in a gas storage plan which seems to be founded on a very rocky premise.



To download the latest issue 'Volume 31 Issue 7 - July 10, 2024', click here
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