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Press Release [FREE Access]
Petro Intelligence » Time For India To Revisit Gas Policy

by Bhamy Shenoy

Gas rich Qatar has made a strategic long term decision to expand its already considerable LNG capacity to 142 million tons per annum (MTPA) by 2030. This is a massive 85% increase over the current capacity. In 2022, India imported 10.8 million tons of LNG from Qatar out of total import of 20.9 million tons. Such an increase by friendly Qatar must be an encouraging development for India. This is even more significant when the US has recently (January 26) paused its review of the application for LNG exports to non-free trade countries.

The US restricting LNG exports are likely to be short term. More than likely it might have been driven to prevent export of LNG to China. But India is also likely to be affected by such a decision in the short term. Quite likely, Indian government must be trying to get an exemption. This may be facilitated because of the improved relations with the US despite India being a non-free trade country.

The U.S. pause on LNG exports could damage the U.S. LNG export sector. Liquefaction projects unable to achieve final investment determinations and break ground before the expiration of their permits in the period 2025-27 may be denied future extensions. If that happens, some planned LNG projects could be delayed or even cancelled. This was one of the conclusions discussed during the Middle East Round Table discussion held on March 21, 2024 at Baker Institute of Rice University.

Much of the discussions concentrated on geopolitical risks to energy supply chain. This might have been influenced mostly because of the major disruptions caused by shipping attacks in the Red Sea and the ongoing war between Russia and Ukraine.

Ever since COP 28 when there was an agreement to begin the end of fossil fuels era, there has been considerable urgency to end even the use of natural gas as soon as possible. This has resulted in some uncertainties regarding the pace and comprehensiveness of transitions to clean energy and the demand for LNG in the medium and long term. Even India who has agreed for net zero only in 2070 will also face uncertainties.

The current global LNG trade volume stands at approximately 400 MTPA, with three major players: the United States (77), Australia (83), and Qatar (84). Each of these countries accounts for roughly 20% of the export market share.

In the last week's Petro Intelligence, the idiocy of India's goal of achieving 15% share for Natural gas in meeting India's commercial energy demand was discussed at length. Let me try to quantify the magnitude of the problem to throw further light on this idiocy.

To achieve 15%, India needs to import 150 million tons of LNG in 2030 - massive increase from 20.9 MTPA in 2022. Is this realistic? India has been trying to secure gas supplies from Iran ( Iran-Pakistan-India pipeline) and Turkmenistan ( Turkmenistan-Afghanistan-Pakistan- India pipeline) since several years and has yet to succeed. For the short and even medium term, only way to meet increasing demand for gas is through LNG.

India's current LNG import capacity with seven terminals is just 47.7 MTPA. India's gas production has been around 21 MTPA and the maximum production of India achieved was 35 MTPA in 2010. It is a pipe dream to expect any significant increase in India's gas production.

As per BP's long term energy outlook, world LNG capacity in 2030 is expected to increase to 575 MTPA. For India to achieve 15% share by 2030, it needs additional import of 130 MTPA which is 75% of incremental world LNG production capacity from today's capacity. This is clearly not realistic. According to the BP report, the US and Qatar are the two countries which contribute to meet the increase in LNG demand.

After 2030, there is considerable uncertainty in world LNG demand - far more than in other fossil fuels oil and coal. This is mostly driven by how energy transition scenario plays out. BP outlook has considered three scenarios - Accelerated, Net Zero and New Momentum. Under the first two scenarios, LNG import demand falls by 40% whereas under the last scenario it increases by 30%.

It is India and other emerging markets which drive the increasing LNG import demand post 2030. This is only partially reduced by declining demand in developed countries.

India's planners will face a daunting task to develop a feasible way of defining the role for natural gas both in the medium and long term. As in the past, they have to consider three dimensions of the trilemma affecting the energy system. They are security, affordability and sustainability. India will give different weight to each of them and they will be different from that of the developed countries. While developed countries may give higher priority to sustainability to fight the climate change, India may not have that luxury.

India has launched a major program to supply piped gas to residential consumers in urban areas to replace LPG - city gas distribution system. Already slightly more than one crore connections have been given. In comparison there are about 31.5 crores of LPG connections.

While such a strategy of CGD sounds fine for countries with adequate gas supplies - either from their own production or imports from reliable sources -India has no such advantage. To replace 50% of LPG connections, LNG requirement is about 14 MTPA (or 19 bcm of natural gas). This amount of LNG can be managed relatively easily provided energy companies have adequate capacity to import LNG from reliable sources like Qatar and US, and there is built-in flexibility to allocate when gas supplies are limited to give high priority to residential consumers. It is useful to mention here the difficult situation faced by India's gas based plants.

In anticipation of adequate gas supplies, gas fired power generating capacity was developed. However when expected gas supplies did not materialize, only a small percentage of gas plant capacity was utilized for several years, only around 14% capacity utilization in 2024. However in the case of residential gas sector, lack of gas supplies can create havoc. It is high time, Indian planners revisit the gas policy to develop a comprehensive study based on the trilemma of security, affordability and sustainability at the earliest to avoid any unpleasant surprises.



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