By R. Sasankan

The Indian liquefied natural gas (LNG) market presents a paradox wrapped inside a conundrum - and unless the people with power and influence resolve this enigma, the fortunes of this segment of India's petroleum industry will remain trapped and hostage to executive inaction.

First, the paradox: India has drastically reduced the import of LNG after the outbreak of the Ukraine war even though the country's consumption of natural gas has risen by 17 per year-on-year between October 2023 and February 2024.

In June 2024, however, India imported 2.74 million tonnes of LNG which was the second-highest quantity recorded for the month and 54 per cent higher than the same month in 2023.

The demand forecast for LNG remains robust. The International Energy Agency has said India's natural gas consumption will increase by more than 7 per cent in 2024. Last week, IEA revised its assessment to suggest that India's natural gas consumption will grow by 8.5 per cent in calendar 2024 from 7 per cent earlier, on account of rising demand from the power and industrial sectors.

The US EIA's International Energy Outlook 2023 projects that natural gas consumption in India will more than triple by 2050. "We project an annual growth of 4.4 per cent over that period, more than twice the 2 per cent annual growth rate of natural gas consumption in China, the next-fastest-growing country," it said.

And here is the conundrum: India does not have adequate natural gas reserves of its own. How will it meet the surge in demand for natural gas? The country has 43 trillion cubic feet (Tcf) of proven natural gas reserves, which is about 1% of the world's total reserves. This is equivalent to 22.1 times India's annual consumption, which means it has about 22 years of gas left at current consumption levels.

The stark figures buttress the point that I have made many times over through this column that the guardians of India's petroleum industry need to drastically change their mindset on the seemingly intractable issues plaguing the natural gas sector. Unfortunately, there has been no indication that either the ministry of petroleum and natural gas or the Prime Minister's Office has shown any sign of even trying to wrap its head around the problems that the sector faces.

Let me put this straight: India needs a new strategy to raise the share of natural gas in the energy basket. The Modi government is committed to a target of raising the share of natural gas in the energy mix to 15 per cent by 2030. But after articulating this goal, the government has done precious little to devise strategies to achieve this onerous objective. The simple truth is that the 15 per cent share for natural gas in the energy mix cannot be achieved unless the power sector and industry start consuming gas.

The problem: they will not do so as long as global LNG prices remain sky high.

This is where the price conundrum gets a little more complicated. India's LNG imports are rising but the consumption is being driven by the high-price-paying segments such as transportation and domestic piped gas. Even at prevailing prices, gas remains the cheapest alternative for these end users.

India needs LNG in large quantities but it is deterred by the high prices. The country's LNG imports fell in 2021 and 2022 when LNG prices surged on the spot market. This is where we need to see government intervention.

How can India obtain LNG on a regular basis without being buffeted by the wild fluctuation in prices that the global market is prone to? One way to devise a shield against price swings would be to persuade Indian companies with relevant experience to acquire producing assets overseas, either through an outright purchase or securing a substantial controlling stake.

The US has quite a few producing fields up for sale. This is a challenge now and would have been much easier during the Covid years when valuations were much lower. According to my information, natural gas fields are still available in the US. Gas Authority of India Ltd (GAIL) is the only state-owned undertaking that has ventured out in this direction but the outcome isn't clear at this stage.

Gas field acquisition is not a complicated process in the US and the government policy does not forbid it either. It may not be possible to acquire very large fields. But Indian companies could certainly make a start by attempting to acquire a couple of medium-sized fields. Being a gas company, GAIL can be the leader of an Indian consortium of PSUs in which others such as ONGC, IOC, BPCL or HPCL can be partners.

Russia presents an attractive opportunity as well. As of April 2024, Russia's natural gas reserves amounted to 1,688 trillion cubic feet (Tcf), the largest in the world. This is equivalent to 102.3 times Russia's annual consumption, which means the country has about 102 years of gas left at current consumption levels.

 Russia has been exporting LNG produced from its plants in Sakhalin. After the start of the Ukraine war, European partners such as Shell quit these projects, forcing president Putin to create a new firm to take over all rights and obligations of Sakhalin Energy Investment Co in which Shell and two Japanese trading companies -- Mitsui and Mitsubishi -- had a combined stake of just under 50 per cent.

Looking forward to 2030, Russia's liquefaction capacity is expected to surpass the 74 mtpa mark. Experts say the West's plan to abandon Russian natural gas by imposing sanctions against that country presents India with the opportunity to source LNG from that nation.

Putin needs a large market and ought to be excited at the prospect of doing business with a friendly nation like India. But it will not be easy to clinch a deal. Putin must be convinced that a consortium of Indian companies presents a sensible option for him.

But there is a downside here. India's PSU leadership looks weak. In Russia, it is President Putin who matters. As it is a matter of great national interest, Prime Minister Narendra Modi will have to take up the matter with Putin. If Indian PSUs are able to acquire a significant stake in Russian LNG projects, India will be able to able to achieve price stability and resolve the conundrum.

Distance and the consequent high transportation cost should not be a problem either in the case of US or Russia. The prospect for striking swap deals for LNG cargoes with countries like Japan can take care of that problem. After all, Japan and South Korea import LNG from Russia and European companies import from the US. They also import from the Middle East which is close to India.

The Indian government should also resolve the pricing contradictions in the domestic natural gas market. Some companies are getting unreasonably high prices for their gas on the pretext that their fields are located in deep water and complicated areas. Nobody will sell India LNG cheaper if we continue to pay the high rates for locally produced natural gas. The government should, therefore, make an honest and transparent attempt to price domestic natural gas competitively.

I am aware of the fact that companies like GAIL are planning to purchase gas to meet growing domestic natural gas demand, including through long-term LNG import agreements with global companies. It is pretty well known that GAIL is exploring a 10-year agreement to import 1 million tons of LNG annually.

India already has a long- term contract with Qatar for the supply of 8.5 million tonnes of LNG per annum. Qatar is expanding its LNG capacity in a big way and it should not be a problem to strike a deal with it for enhanced quantities.

In my view, India's problem is really large and calls for a stable solution. A government which fixed a target to enhance the share of gas to 15 per cent by 2030 from the present level of 6-7 per cent should ensure that it does not stumble badly while trying to achieve the target.