4thAnnual Conference on LNG-The future Fuel in India


gas         summit

Global LNG trade in 2017 had depicted an interesting trend. It is pertinent to note that the countries that entered the market after 1999 are showing growing trend and promising market for LNG trade. In the last 6-7 years these markets have experienced an average annual growth rate of ~22%. Although the year on year growth rates are expected to slow down in the coming years, these countries will compose a consistently increasing share of total LNG trade, as demand in China, India, and Southeast Asia are anticipated to grow significantly.

Chinese LNG consumption has been a major demand mover of global LNG trade in the second half of 2017, largely driven by environmental policy and the ongoing ramp up of new long-term contracts. On the other hand, with increasing demand, India now, is the fourth largest LNG importer in the world.

Natural gas demand in India is constrained by limited domestic supply. The fall of D6 production has significantly impacted gas consumption over the last decade. Against the planned production of 2.8 Bcf/d, the gas production had fallen significantly to approximately 0.3 Bcf /day. Consequently, LNG has been an important offset to India’s production shortfall in the recent years.

India’s LNG demand is braced by long term LNG supply from Qatar. The country has also taken a major bet on LNG supply from the United States, particularly from Sabine Pass LNG and Cove Point LNG. However, a key uncertainty for the market is the ability for Indian consumers to consume relatively high-priced LNG on a long-term basis. Nevertheless, a sustained period of low spot and short-term pricing is expected to benefit India as the market will be a key consumer for excess cargoes as the industry is moving towards excess supply.

In the coming decade, the demand for LNG in India will majorly be influenced by the outlook for domestic production and by emerging gas demand sectors like City Gas Distribution (“CGD”). With 9th round of CGD bidding around the corner, total of 86 new Geographical Areas are identified by the government for developing CGD infrastructure, consequently contributing to sustained LNG demand. However, by the end of the next decade, domestic production is expected to decline creating a tremendous opportunity for sustainable LNG demand growth.

With the LNG market facing oversupply pressures, Indian LNG buyers are under pressure to deliver price-competitive LNG for the country’s gas market. As a result, the buyers are pushing for contract re-negotiations. Regasification capacity has been a constraint on further growth in the LNG market. In the first half of 2017, there has been 11% underutilization of effective capacity indicating that Indian importers could have imported more if they needed to.

In the next few years, multiple new terminals and expansion capacity are expected to come online, further enhancing India’s ability to import LNG. Regasification capacity is expected to expand considerably in India after several years of high utilization. As regional markets develop in India that have been isolated due to a lack of pipeline connectivity, new regasification terminals will help unlock latent demand in these regions. New regasification is needed in central-eastern and northeastern India. New pipelines are proposed to enable further gas penetration from those import points to other parts of the country. India has long considered importing pipeline gas, but no such plan looks likely to materialize in the near future. Thus, there will be continuing reliance on LNG for the country’s import needs.

Government of India’s plan to set up a gas trading exchange is a positive move towards increasing the share of natural gas in country’s energy mix.