Gas market in
India
Overview and future
outlook
Contents
Overview of India’s natural gas
market
•
The current Indian gas market: a
snapshot
2
3
3
Future outlook
8
•
Demand landscape
8
•
Supply landscape
India’s natural gas market
10
Overview of India’s natural gas
market
An expanding economy and a growing population have resulted in increased consumption of
primary energy resources such as coal, crude oil and natural gas in India. During 2009-2014, the
country’s primary energy consumption grew at a CAGR of 5.7% to reach 638 million tonnes of oil
equivalent (MTOE) in 2014. However, the share of natural gas in the country’s primary energy mix
declined from 10% in 2009 to 7% in 2014 compared with the global average of 24%, mainly due to
a sharp drop in domestic supplies.
India’s natural gas demand has been mainly affected by lower availability and price affordability;
inadequate transmission and distribution infrastructure; and limited gas import facilities. India’s 39
cubic meters (cm) per capita of natural gas consumption lags far behind the world average of 469
cm per capita.1
Figure 1: India’s standing in the global gas market
4000
70%
3500
60%
3000
50%
2500
40%
2000
30%
1500
20%
1000
10%
500
0
il
y
a
a
e
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ey
di
in
az anc
an apa
rk
In
m
Br
Ch
J
r
Fr
Tu
Ge
ly
Ita
a
re
Ko
.
S
UK
Per capita gas consumption (cm) - LHS
Share of gas in energy mix (%) - RHS
a
n
da
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na
ra
ra
a
A
e
C
i
d
ud
Fe
n
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a
i
ss
Ru
n
Ira
US
0%
Source: EY analysis, BP Statistical Review of World Energy 2015, World Bank
The current Indian gas market: a snapshot
1. Falling domestic gas production:
In FY10, domestic gas production received a significant impetus from the commencement of
production from the eastern offshore KG-D6 block operated by Reliance Industries. However,
gas supply from the block fell and averaged 11.8 million metric standard cubic meters per
day (mmscmd) during the last quarter of 2014, as against the peak production of above 60
1 EY analysis; BP Statistical Review of World Energy 2015; “World Development Indicators – Population Total,” World
Bank, 2015
India’s natural gas market
3
mmscmd in 2010.2 This increased the supply deficit and affected the large gas consuming
industries — power and fertilizer units. During 2014, India’s domestic gas production averaged
87 mmscmd.3 Currently, the majority of gas production comes from the western offshore
region and almost all of it is from conventional hydrocarbon sources. National oil companies
(ONGC and Oil India) account for nearly three-fourth of the total domestic production.4 India’s
gas production is set to rise in the next four-five years as discoveries on western and eastern
offshore are brought on production.
The Indian upstream sector faces several challenges, including concerns on prospectivity,
inadequate upstream data, changes in the fiscal regime and low domestic gas prices. The
Government has indexed domestic gas prices to gas prices in the international markets — the
US, Russia, Canada and Europe. This is a progressive step, as it provides market linkage and
transparency in the mechanism of setting gas prices on a six-monthly basis. However, with
the fall in global oil and gas prices over the last year, the upstream sector is concerned that
this pricing regime is not attractive. Domestic gas prices have fallen below the earlier US$4.2
per million British thermal unit (mmbtu) levels and are set to fall further according to this
formulation. This makes development of new discoveries in the western and eastern offshore
even more challenging.
mmscmd
Figure 2: India’s gas consumption and production trends
200
40%
150
30%
100
20%
50
10%
0
2010
2011
Consumption
2012
Production
2013
2014
0%
Deficit %
Source: EY analysis, BP Statistical Review of World Energy 2015
2. Natural gas consumption:
Power, fertilizer, city gas distribution (CGD), and refineries and petrochemicals are the key
gas-consuming sectors. India’s gas consumption declined from 172 mmscmd in 2010 to 139
2 Reliance Industries financial presentation, 3Q FY 2014-15; Reliance Industries financial presentation, FY 2009-10
3 BP Statistical Review of World Energy 2015
4 “Petroleum and Natural Gas statistics 2014-15,” Ministry of Petroleum & Natural Gas (MoPNG) of India, accessed 29
December 2015.
4
India’s natural gas market
mmscmd in 2014. This was because of the lack of availability of domestic gas and the inability
to absorb expensive LNG imports in the power and fertilizer sectors. The latter arose due to
price competition with alternate fuels (in the power sector) and impact on government subsidy
burden due to end-price control (in the power and fertilizer sectors).
Figure 3: Sector-wise natural gas consumption mix in FY2014-15 (1H)
Other industries
Refineries and petrochemicals
12.2%
35.4%
14.0%
CGD
Fertilizers
14.0%
24.4%
Power
Source: EY analysis, MoPNG
Note: Period is from April 2014 to September 2014
The fall in domestic gas production and low price affordability of imported gas in the power
sector has resulted in gas-based power plants remaining under-utilized. Effective plant load
factor (PLF) for FY15 was 21% and nearly two-thirds of the total gas-based installed capacity
(23GW) was stranded.5 However, the recent drop in oil prices has made spot LNG imports
relatively cheaper and the power sector is expected to consume higher regassified LNG (RLNG)
supplies.
Recently, the Government has taken the following positive initiatives to revive the stranded
gas-based capacities in the power and fertilizer sectors by making imported LNG affordable:
•
In the power sector, it is providing subsidy through a reverse bidding scheme, to allow
stranded power assets to operate at 30% PLF and service the lenders.6
•
In the fertilizer sector, it aims to increase urea production by 3.7 million metric tonnes per
annum (mmtpa) by FY19 through gas pooling policy (uniform delivery cost by averaging
domestic and LNG gas prices).7
Currently, more than 50 cities have been covered by retail gas distribution. However, the full
5 EY analysis; “Summary - All India,” Central Electricity Authority, http://www.cea.nic.in/reports/monthly/
generation/2015/March/actual/opm_17.pdf, 5 May 2015; “Scheme for utilization of gas-based power generation
capacity,” Ministry of Power, 27 March 2015, p. 11-14.
6 “Scheme for utilization of gas-based power generation capacity,” Ministry of Power, 27 March 2015, p. 5.
7 “Pooling of Gas in Fertilizer (Urea) Sector,” Press Information Bureau,
http://pib.nic.in/newsite/PrintRelease.aspx?relid=117888, 31 March 2015.
India’s natural gas market
5
potential of these networks will be achieved over the next three-five years. At present, the
retail gas sector has more than 3 million homes, 1,015 CNG stations, 2.5 million CNG vehicles,
22,786 commercial and 6,087 small industrial users.8 A total of 16.5 mmscmd of gas was
used by the CGD sector during 1H 2014-15, representing 14% of total gas consumption in
the country.9 The Petroleum and Natural Gas Regulatory Board (PNGRB) has conducted five
rounds of CGD bidding and is expected to close the sixth round during early 2016.
3. Growing transmission and distribution infrastructure:
India’s gas pipeline infrastructure is relatively under-developed. It currently has a network
of 17,421 km of natural gas transmission pipelines with a design capacity of around 464
mmscmd (for major gas pipelines).10 The pipeline network has been operating at low utilization
levels mainly because of gas availability and affordability issues. The PNGRB has authorized
the construction of many cross-country gas pipelines (covering more than 5,000 km of pipeline
network). However, the projects have not materialized due to lack of anchor customer demand,
which has caused viability and financing concerns.
4. LNG bridging gas supply deficit in India’s energy landscape:
LNG plays a critical role in partially bridging the gas supply gap in the country. India is currently
the world’s fourth-largest importer of LNG, behind Japan, South Korea and China. During
FY10-FY15, Indian LNG imports increased at a CAGR of 11.1% to 15.5 MMT, with LNG’s share
in the overall gas supplies rising from 20% to 38% during the period.11
Currently, India has the infrastructure to annually import and regassify 25 mmtpa of LNG
through the four terminals (Dahej, 10 mmtpa; Hazira, 5 mmtpa; Dabhol, 5 mmtpa; and Kochi,
5 mmtpa) established on the west coast. However, the actual import capacity is less than
17 mmtpa due to lower utilization of the Kochi and Dabhol terminals on account of pipeline
connectivity issues and incomplete marine facilities.
There are a number of greenfield and brownfield LNG projects at different stages of
conceptualization and development on the eastern and western coasts of India. Their viability
and actual development is also predicated on the emergence of a robust gas market in India,
with an appropriate policy framework to address the challenges faced by different segments of
the industry.
8 “PNGRB calls bids to set up city gas network in 34 areas,” Financial Express, 5 October 2015, via Factiva, © 2015
Indian Express Online Media Pvt. Ltd; “PNG/CNG Coverage,” Press Information Bureau, http://pib.nic.in/newsite/
PrintRelease.aspx?relid=132028, 30 November 2015; “Petroleum and Natural Gas statistics 2014-15,” MoPNG,
accessed 29 December 2015.
9 Petroleum and Natural Gas statistics 2014-15, MoPNG; EY analysis
10 Petroleum and Natural Gas statistics 2014-15, MoPNG
11 Petroleum and Natural Gas statistics 2014-15, MoPNG
6
India’s natural gas market
Figure 4: Increasing role of LNG imports in total gas supply*
40
60
20
%
mmscmd
40
20
0
0
FY10
FY11
FY12
LNG imports
FY13
FY14
FY15
LNG in total gas supply
Source: EY analysis, MoPNG
*Total supply includes domestic production and LNG imports
5. Gas pricing:
Supplies to India’s gas market are categorized into two segments: domestically produced and
imported (via LNG) gas. The price of domestic gas is lower than that of LNG and is defined by
the Government’s adopted indexation formula. The Indian Government has liberalized domestic
gas pricing in a phased manner. From a pure administered pricing mechanism, the pricing
moved to part indexation and thereafter to full indexation (introduced in 2014) as described in
point 1 earlier. The Government had also indicated development of a different pricing formula
for gas production from deep offshore as well as high pressure/high temperature areas, which
is yet to be announced.
The price of imported LNG is higher than that of domestic gas. The Government does not
exercise any control on LNG imports and the marketing of RLNG. The quantity of spot LNG
imports was 7.5 mmtpa during 2014-15.
Petronet LNG has been importing 7.5 mmtpa LNG on a long-term basis from Qatar. The price
was indexed to oil, linked to the 60-month average of Japanese Custom Cleared (JCC) oil
prices.12 With the collapse in global oil and gas prices, these long-term supplies had become
unviable with the contracted price at c. USD 12-13 per mmbtu vis-à-vis the spot LNG prices
at USD 7-8 per mmbtu. In a recent positive development, through a renegotiated contract,
Petronet LNG will now import 8.5 mmtpa of LNG from Qatar with price linked to the 3-month
average of Brent crude oil prices.13
12 “Petronet LNG,” Morgan Stanley, 27 April 2015, via ThomsonOne.
13 “Cheaper LNG,” The Hindu Business Line, 2 January 2016, via Factiva.
India’s natural gas market
7
Future outlook
Natural gas is set to secure a bigger position in the global primary energy pie. This is underpinned
by the following key factors:
•
Abundant and geographically distributed gas reserves and growing global trade of gas
•
Lower pollution and emission levels, which help in meeting greenhouse gas (GHG)
emissions commitments
•
Technological advancements expanding the applications of gas
The Indian gas market also has an opportunity to transform and grow significantly. This growth
will be driven by several critical economic and social drivers emerging from India’s national
development agenda.
Demand landscape:
While there are many estimates for India’s long-term gas demand (figure 5), given different
assumptions around the availability, affordability and growth in key end-use segments, it is clear
that India’s gas demand could at least double from the current consumption levels of 139 mmscmd
(in 2014) over the next 10-15 years.
Figure 5: Varying estimates for India’s gas demand
746
800
mmscmd
600
465
400
200
598
552
314
247
177
0
2020
IEA
PNGRB
2025
13th Five Year Plan
2030
Current consumption
Source: IEA World Energy Outlook 2015, PNGRB Vision 2030, 13th Five Year Plan source through Petroleum Planning
and Analysis Cell website
*For PNBRG and 13th Five Year Plan, data represent the years ending March
The actual build-up of gas demand would be a function of the interplay of various factors and policy
initiatives such as the development of clean energy sectors, pricing and cost competitiveness of
gas, climate change commitments, investments in gas sourcing and supply infrastructure, and
finally the development of end-use sectors. Some of these are summarized in figure 6:
8
India’s natural gas market
S No.
Factors/initiatives
Likely impact on gas demand
1.
Make in India
•
2.
3.
Radical shift in India’s GDP structure:
•
manufacturing sector’s share set to increase from
16% currently to 25% by 202214
Requirement for more base and peak
power, and heat-cooling
Renewable power generation
•
Major shift in India’s power generation mix with
thrust on significant renewable energy capacity
additions: 175GW target (non-hydro) by 2022
and 40% share of non-fossil fuel in the overall
generation capacity by 203015
Requirement of grid stability as solar and
wind power are interruptible sources of
supply
•
Inherent operational flexibilities of gasbased power generation to help in grid
balancing
Step up in agriculture
•
Improvement in domestic fertilizer
production required to support increased
agricultural activities
•
Gas is the preferred feedstock for
production of nitrogenous fertilizers
•
Retail gas distribution can help manage
urban pollution, along with providing cost
competitive supplies to support growing
cooking and transportation needs
•
Expansion of city gas distribution
network: more than 100 cities expected
to be covered by 202216
•
Global (mainly the US, China and Europe)
trend of commercial vehicles (medium-toheavy duty) switching over to CNG/LNG
•
Inherent qualities of gas of being an
efficient and relatively clean burning
energy source
Requirement for significant increase in food
supplies and allied products to support growing
population and changing food consumption
habits (“second green revolution”)
4.
Urbanization and urban pollution
India’s urban population to grow significantly:
existing cities and towns to become bigger, along
with the emergence of new cities and towns over
the long term; many cities already grappling with
alarming pollution levels
5.
Green corridors
A concept to support inter-state movement of
CNG vehicles
6.
Multifold increase in energy demand
Intended Nationally Determined Contributions
(INDC)
Pledge to reduce the carbon emissions intensity
of India’s GDP by 33%-35% by 2030 from the
2005 level in its INDC17
14 “National Manufacturing,” Make in India, http://www.makeinindia.com/policy/national-manufacturing, accessed 5 January 2016.
15 “India’s intended nationally determined contribution,” United Nations Framework Convention on Climate Change, 25 September
2015, p. 29, 35; EY analysis
16 “Vision 2030,” PNGRB, accessed 29 December 2015, p. 25; EY analysis
17 “India’s intended nationally determined contribution,” United Nations Framework Convention on Climate Change, 25 September
2015, p. 29; EY analysis
India’s natural gas market
9
Apart from the above, other factors such as the growth of India’s refining sector, setting up of
chemicals and petrochemical parks and other similar industries would significantly add to gas
demand in the coming years.
Supply landscape:
India’s gas supply base would need to enlarge and diversify to meet the country’s growing
energy demand and address the energy security agenda. The following initiatives have the
potential to boost overall domestic gas supplies over the medium–to-long-term period:
•
Development of conventional and unconventional gas resources: New Government
initiatives such as Open Acreage Licensing Policy, revenue sharing model for new
contracts, and unified licensing, gas marketing and pricing freedom under the Marginal
Field Policy
•
Augmenting LNG import capacity through brownfield expansions and commissioning of
greenfield terminals
•
Development of transnational gas pipelines such as Turkmenistan-Afghanistan-PakistanIndia (TAPI) pipeline, and imports through sub-sea pipelines from Iran (SAGE pipeline
project)
Realizing the potential of these initiatives depends upon a robust policy framework and
proactive steps taken to address industry concerns in various aspects of the gas sector.
10
India’s natural gas market
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