Royal Dutch Shell the world’s largest liquefied natural gas (LNG) producer, said last month it had installed an LNG loading facility for trucks at its 5 million tonnes per annum (mtpa) LNG import terminal at Hazira, a major port on India’s east coast.
India’s oil minister, Dharmendra Pradhan, said the unit would create natural gas availability in the country’s off-grid areas where no gas pipelines exist. He added that it would promote the use of LNG in the country’s long-haul trucking sector.
India’s LNG development plans
Shell’s move comes as India tries to pivot from an economy largely based on coal to more gas, including a major LNG infrastructure build-out. New Delhi recently earmarked gas to make up at least 15 percent of the country’s energy mix by 2030 from just 6.2 percent currently.
India bypassed legacy LNG importer Taiwan several years ago to become the world’s fourth-largest importer of the fuel. In 2019, India imported 1.2 trillion cubic feet worth of LNG – around seven percent of global trade – and a 25-percent increase over 2017 levels, according to the U.S. Energy Information Administration.
After initial procurement contraction in early 2020 due to the onset of the COVID-19 pandemic and subsequent lockdowns, India took advantage of multi-year low spot prices – coming from both a prolonged overhang of the fuel, due to ramped-up production in the U.S. and Australia, as well as continued demand destruction from the pandemic.
India commissioned its sixth LNG import terminal last year, and it has four more under construction that are expected to come online by 2023. Its terminal expansion coincides with the country trying to put in place a major gas pipeline grid to cover around two-thirds of the country.
India’s LNG and gas development has also given it considerable bargaining power with producers as it tries to move away from pricing based on oil-indexation to term deals based on spot prices – a new development in LNG contracting.
However, a challenge for India’s plan to change LNG pricing dynamics came in January when LNG spot prices in the region breached the US$30 per million British thermal unit (MMBtu) price point. Colder winter temperatures slammed north Asia, creating a gas supply crunch in top LNG importers Japan and China.
Going forward, India will have to decide whether it wants term supply deals using an industry standard oil-indexation formula, or a mix of oil and spot price indexation as well as shorter-term flexible pricing against other benchmarks. India’s largest importer, Petronet LNG (NSE: PETRONET), has already been trying to renegotiate prices reached under long-term deals with Qatar. Lower spot prices over the past two years made such long-term deals unattractive.
In 2019, Petronet signed a memorandum of understanding to buy a US$2.5 billion stake in Tellurian’s proposed Driftwood project in Louisiana, including importing 5 mtpa of LNG. However, a deal could not be reached before its terms expired at the end of December, prompting some analysts to concede that India’s inconsistency in LNG markets could tarnish its reputation in future deals.
Given the ongoing supply overhang in LNG markets that will now be extended even further due to demand destruction from the COVID-19 pandemic, India still has a plethora of producers to choose from as well as a growing list of LNG trading houses that are now starting to also offer term deals.
Timely domestic production
Production at India’s first ultra-deep water gas field that could help the country reduce its dependence on energy imports got underway in December. Mumbai-based Reliance Industries Ltd. and oil and gas major BP started producing first gas at the country’s initial ultra-deep water gas field, the R Cluster in block KG D6, some 37 miles (60 kilometers) off the country’s east coast.
The field, the first of three in the same block, is expected to produce 12.9 million standard cubic meters per day (MMscmd) of gas this year. The first field by itself will meet around 10 percent of India’s gas needs. At peak production, all three KG D6 fields are expected to produce around 30 MMscmd (1 billion cubic feet per day) by 2023, representing 25 percent of India’s domestic gas production and meeting around 15 percent of the country’s projected gas demand by that time period.Share This