Globally LNG market dynamics are changing fast as the industry is still at the evolution stage and right mature sustainable business models are yet to be realised among the players. Commoditization or consolidation in the trade activities is still under contemplation within the industry.
2018 was yet another year showing a consistent increase in global LNG demand reaching to abt 310 MMTPA. Most of the growth as compared to 2017 came from China, Japan, South Korea, and India, with China contributing almost half of the growth.
On the supply side, US is on the full throttle with the advent of shale gas, to lead the world as a major exporting hub with capacity ramping up fast. New FIDs are going to take shape in coming years and competitive pricing offered for US gas will play the major pivotal role in LNG supply chain transformation resulting in several SPAs across the globe.
India is currently ranked 4th globally for driving LNG demand behind established gas driven economies China, Japan, and South Korea. Top demand drivers from Asia (China, Japan, South Korea, and India) are all in their own time zones of following their own gas driven economic strategies. Japan will restart its nuclear plant in 2020 and China will start getting its gas supplies through Russian pipelines by 2020-21. These two major developments will put the pressure on the demand side of the global LNG supply chain resulting in dampening of growth rate in China & Japan. Meanwhile, India is sitting on a plethora of opportunities to become a gas driven economy and change the face of the game.
Here’s how India has prepared itself for bigger LNG game :
1) India’s position as a founder in global LNG trade:
India’s LNG growth can be compared to any typical startup with a huge TAM(Total Addressable Market) and high growth business potential on its plate. Such a business model comes with its own risks such as industry technicalities, financial, geopolitical and many others which cannot be easily controlled. In such cases, it is advisable to take baby steps first in the best possible beachhead market and make all efforts to make the model successful in that market. Once the feasibility is tested from all angles in this market, it is now possible to apply the repeatability model to replicate success in other markets with easy and fast execution. To Start this journey, India Inc. selected this beachhead market as the State of Gujarat.
2) Gujarat State as Beachhead :
Gujarat is the most vibrant maritime state on the west coast of India and is the leader in gas-fuelled energy diversification. Gujarat’s gas story began in 1972 and today natural gas comprises 25% of the energy mix in the state which is higher than the world’s average of 24%. Several gas companies are operating and cover approximately 85% of the state through 469 CNG stations, catering to 1 Million NGVs daily. India’s average energy mix is 6.2% with a national total of 1491 CNG stations and 3.2 million NGVs. Gujrat alone operates more than 30% of these CNG stations and NGVs in the country.
To tap International gas, India inc. set up India’s first RLNG terminal at Dahej in 2004 and Immediately just in 2005, second LNG terminal was commissioned in Hazira. With this security in gas supplies, Govt of Gujarat (GoG) revised the legislation to make CNG as compulsory fuel for vehicles and became the first in India to do so. The year 2018 was remarkable again adding the 3rd RLNG terminal in Gujarat state at Mundra port.
Hence, Gujarat has been prepared as a model state prototype by India Inc. to lead in NGV, Gas and RLNG distribution in India.
3)Petronet LNG as a Chief LNG architect for the country:
Petronet LNG Ltd (PLL) backed by GAIL, ONGC, BPCL, IOC , was the pioneer of LNG import in India from Gujarat state and leads the country in fulfilling LNG requirements of the country with current capacity of 20 MMTPA and 7.5 MMTPA as further proposed expansion making total of 27.5 MMTPA. This will enable PLL to fulfill country’s gas hunger from all directions West (Dahej), South (Kochi) and East(Gangavaram).
4) Role of other players as key market enablers:
India inc. backed by key oil and gas players such as GAIL, ONGC, BPCL, and IOC have been committed to making India clean energy and pollution free country. In the past decade, private players have increasingly come forward to contribute and capitalize on country’s plan towards gas driven strategy. Shell(Hazira), HEnergy (Jaigarh /Kolkata), Adani (Mundra/Dhamra), Swan(Jafrabad), Shapoorji Pallonji (Charra), KRPEL/LNG Bharat(Krishnapatnam), are the few players who are already active in the market. These companies are not only applying new innovative ideas & business models to reduce the LNG cost for the end consumers but also contributing to establishing distribution network across the country along with Govt agencies to develop India as a gas friendly nation by taking gas access to every corner of the country.
With a strong team in action at all levels in the country, Here’s how India will play the key pivotal role in driving LNG demand in the years to come:
(1) LNG for power generation & combating pollution: Long time usage of dirty fuels like coal and fuel oil have resulted in severe pollution and depleted the air quality to dangerous levels in various cities across India. The same situation was faced by China sometime back forcing them to switch to LNG as cleaner fuel option to combat pollution, giving rise to LNG import in the country in the past few years. Air quality index is at dangerous levels for most of the major cities in India and strict measures to fight air pollution is the number one agenda for Indian Govt. The only solution India has is to follow China’s path and reduce the dependency on coal & oil and increase the usage of LNG as a fuel for power generation. The Indian government is keen to boost the use of LNG to fight air pollution and is using all means to expand gas infrastructure within the country.
(2) LNG usage by heavy vehicles: The Ministry of Road Transport and Highways has approved LNG as an automotive fuel for highway trucks and agricultural tractors for farming. Govt will run pilot testing on 5000 trucks with LNG in 2019 and based on the trials another 5000 trucks will be converted to LNG in 2020.
(3) LNG to support EV movement: With the massive Electric Vehicle (EV) expansion plan in the coming years, electricity generation is required from either coal or gas to charge the car battery. The best option to support EV movement for electricity generation is through LNG.
(4) LNG to fuel Inland waterways: The Ministry of Shipping and Inland Waterways Authority of India (IWAI) is committed to promote and make efforts to make LNG as an environmentally friendly fuel for transport through inland waterways across India.
(5) LNG for Locomotives: Indian Railways, one of the biggest rail network in the world, formed Indian Railway Organization for Alternate fuels (IROAF) and doing trials to use LNG as a fuel replacing currently used diesel. Several diesel engines are already converted to CNG operation. GAIL has already commenced working to supply LNG to railways workshops, coach factories & Loco engine sheds.
In 2017, Indian railways operated on the approx 67000kms long rail network, carrying 8.26 billion passengers, 1.16 billion tons freights on approx 11000 trains per day with the workforce of 1.54 Mn people. Just imagine the demand for LNG will be created once these trains will start using LNG as a fuel.
(6) LNG for remote industrial consumers: Industrial consumers are accepting Small-scale R-LNG solutions for bulk gas requirements especially where the pipeline is not available. This is adding to Natural Gas Vehicle (NGV) growth by introducing L-CNG stations in areas where pipeline gas is not available. India’s first LCNG commenced operation in 2018, which will deliver natural gas for refueling vehicle, either in liquid or gaseous form.
(7) LNG bunkering for ocean-going ships: India’s LNG focus is also to create bunkering facilities and become LNG bunkering hub in Indian ocean region for international shipping, to align with global initiatives of IMO committed to the use of cleaner fuels for the marine industry. In March 2015, Petronet’s Kochi terminal successfully bunkered “Kvitbjørn” with 127 tonnes of LNG and made history by making her, world’s first vessel to operate between Asia and Europe solely on liquefied natural gas.
India has huge unfulfilled demand for LNG and it is extremely essential to develop necessary infrastructure meeting this demand. Above initiatives make clear that India is set to transform the country by developing LNG based power generation, city transportation, Highways trucks, Railways, Inland waterway transportation, International bunkering hubs etc. LNG import terminals will be set all across the nation and FSRU deployment at all the major Indian ports is already on agenda to speed the process of making LNG supply readily available at every corner of India. India is historically a price sensitive market and any competitive changes on the supply side will result in the immediate ramping up of LNG imports in the country. Recent gas deal with Gazprom and ongoing discussions to grab cheap US LNG options are few examples. Moreover, LNG import is set to increase due to domestic production is on the regular decline. As per IEA, Indias LNG demand will be increasing at the rate of 4.9% as compared to China’s 4.7%.
In nutshell, To fulfill India’s goals and to achieve the vision of becoming a gas-based economy, India has taken small but major steps by successfully running pilot program in Gujarat state as a model for energy diversity and cleaner air. From RLNG terminals to Gas distribution network (via pipeline, road trucks etc) to CNG stations to NGVs to Govt, Private and International partnerships in LNG value chain, This prototype has proven to be successful for all the stakeholders and confirms that repeatability of this model across the country will result in fulfilling the national agenda of cleaner & pollution free cities.
India Inc. LNG story is all about “Start small, Think Big”. Next decade will be interesting from India’s perspective for LNG industry growth and its transformation.Share This