In the world of liquefied natural gas (LNG), no market is watched with more interest or more potential excitement than India. In 2015 the country with the second-largest population on earth imported 15 million tons of LNG, but some forecasters predict it will import nearly 50 million by 2030. LNG faces a critical juncture, with some 40-50 million tons reckoned to be “homeless” by 2020 unless new contracts are signed; this has placed buyers like India and Japan in privileged positions, with the leverage to re-negotiate existing LNG contracts (which are generally signed for long-term, fixed amounts) and take advantage of a global glut to make short-term and spot price buys, minimizing divergence with market prices. India, currently the world’s fourth largest LNG importer, may turn into an LNG juggernaut, taking in the new production from Australia, the U.S., Iran and elsewhere. It has announced plans to increase re-gasification capacity to 55 million metric tons in order to feed demand. But the key question remains: is that demand reliable?
Indian Oil, the state-run refining company, has announced that it expects to earn 15 percent of its total revenue from gas-related projects by 2021. At the moment, gas trading contributes only 5 percent to the company’s bottom line, and India overall relies on gas for 6.5 percent of its energy needs, lagging behind the global average of 23.8 percent. India Oil is set to invest $27 billion in oil and natural gas inside India, including a planned “mega refinery” in partnership with foreign capital. The company has reportedly secured 13 million tons of LNG regasification capacity across terminals in India, and has retained a commitment to importing two cargos of LNG from the Dahej import terminal every month.
The terminal is run by Petronet, the country’s single largest LNG importer, which has been exploiting low prices to feed a “buying binge:” it’s expanding Dahej’s capacity from 10 million cubic meters a year to 15 million and is constructing a brand new terminal in the Indian province of Gangavaram on the East coast. These projects come with a high price tag, but Petronet can apparently afford it: the company reported a 55 percent increase in net profit for the first quarter (ending June), though the increase amounts to total net profits of $56 million, chump change for energy majors.
The commercial ambition of India’s energy companies is matched by that of India’s government, which wants natural gas to account for 15 percent of overall energy use, an official said on September 6. Greater imports are needed to make up for India’s stagnant natural gas production. In 2015 the country’s production fell by 5 percent, while it’s per capita average (39 cubic meters) lags far behind the world average (369 cubic meters). There remains a vast number of Indians, estimated at some 280 million, who do not have access to reliable sources of electricity. Increased interest in imports is matched by a desire to grow domestic production: India is currently holding bid rounds for 67 new fields. There are also plans for a domestic natural gas hub, so that domestic prices can be traded more efficiently.
India is superbly placed to take advantage of a growing ocean of LNG that is building worldwide. Qatar, long the world’s leader in LNG exports, re-negotiated its long-term contract with Indian importers through RasGas last December and remains India’s major LNG supplier. Indeed, it was the RasGas deal which sent Indian LNG prices falling earlier this year. But Qatar’s position is being challenged by Iran and Australia, which are each particularly well-positioned to feed India’s LNG demand.
Energy diplomacy during 2016 has brought Iran and India closer together, with India recently expressing interest in constructing a terminal in Iran for facilitating exports back to India. Iran’s LNG output has not yet reached its potential, but expectations that it could compete with Qatar are running high.
Australia has already built a significant LNG infrastructure and is ready to export. Massive projects like Chevron’s Gorgon facility are finally in a position to begin exporting large quantities of LNG. Japan’s Tokyo Gas Co. recently accepted its first cargo from Gorgon, a further sign that the facility’s much-publicized woes may finally be at an end. Other ailing LNG projects are benefiting from more capital, a sign that whatever the current market conditions, Australian commitment to LNG production remains strong. Global conditions point to thriving small-scale LNG production, even as high-profile mega projects like Gorgon struggle.
Like other countries worldwide, India’s natural gas ambitions are one part economic, one part political. India has committed itself to bringing down its greenhouse gas emissions. Coal accounts for 61 percent of its total energy use, and like China, India has shown an interest in moving away from coal as an energy source. Global commitment to reducing greenhouse gases are helping to feed demand for cleaner natural gas, but the transition from dirtier fuel sources has been slow, while competition from renewable energy sources has been tougher than expected. India is trying to accelerate the transition by feeding natural gas to power plants, including nine in the southern part of the country, while the government is trying to encourage shipping to adopt natural gas as a new fuel source.
But challenges lie in the way of India’s LNG ambitions. In the summer, the big story was India snapping up LNG adrift on the European market, for want of a buyer. The price was plummeting, a glut was exceeding demand, and India was well positioned to feed growing domestic demand. Imports from March to May soared, only to stagnate in July. Total imports this year are more than 20 percent higher than last year, but that may be a product of low prices rather than actualized demand: importers are taking advantage of favorable market conditions to snatch up LNG while they can.
Despite government interest in LNG as a new, clean energy source, there has been a commitment within the government of prime minister Narendra Modi to increase the country’s coal production to 1 billion tons a year by 2020, announced in July 2015. This was in part a political move, designed to answer accusations in 2014 (when Modi came to office) that the country’s coal stores were dangerously low. When the announcement was made last year, a number of India’s coal-fired power stations sat idle for want of fuel.
Now, the situation has been reversed. Coal India, the state-run mining company, has been producing and importing massive new stocks of coal, but recently reported a decline of 14.7 percent first quarter profits from 2015. Demand for more coal is projected to be sluggish, and the ambitious call for 1 billion tons toned down. While this may bode well for natural gas, it points to another potential problem: energy demand in India may not be as robust as expected. So, while hopes are running high that India can save LNG from its current woes, it remains to be seen whether those hopes will be dashed upon the subcontinent’s shores. Marcus Martin Womens Jersey
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