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Gas Infrastructure Lags in India

Published Jul 5, 2014 12:26 AM by The Maritime Executive

India was self-sufficient in natural gas until 2004, when it began to import LNG from Qatar. Because it has not been able to create sufficient natural gas infrastructure on a national level or produce adequate domestic natural gas to meet domestic demand, India increasingly relies on imported LNG, says the Energy Information Adminidstration. India was the world’s fourth-largest LNG importer in 2013, following Japan, South Korea, and China, and consumed almost six percent of the global market, according to data from IHS Energy. Indian companies hold both long-term supply contracts and more expensive spot LNG contracts.

Natural gas consumption has grown at an annual rate of eight percent from 2000 and 2012, although supply disruptions starting in 2011 resulted in declining consumption. Natural gas consumption in India was tied closely to domestic production until imports became available in 2004. In 2012, India consumed 2.1 trillion cubic feet (Tcf) of natural gas. LNG imports accounted for about 29 percent of 2012 demand, and LNG is expected to account for an increasing portion of demand at least in the next several years as Indian energy firms attempt to reverse the country’s recent domestic production declines. 

Increasing LNG imports will depend on the pace of expansion in regasification terminal capacity and pipeline infrastructure connecting gas to markets that currently lack access. The country’s pricing system is undergoing revision to unlock regulated prices that are well below the import price levels. Raising gas prices would provide oil and gas firms with economic incentives for upstream development, especially in deepwater plays and technically challenging fields, and would allow LNG importers to compete more effectively for gas consumers in a higher-priced environment.

Exploration and production

India had 47 trillion cubic feet of natural gas reserves at the beginning of 2014, mostly located offshore. The two largest state-owned oil companies, ONGC and Oil India, dominate the country’s upstream gas sector.

According to the Oil & Gas Journal, India had 47 Tcf of proved natural gas reserves at the beginning of 2014. About 34 percent of total reserves are located onshore, while 66 percent are offshore, according to India’s Ministry of Oil and Gas. In 2002, energy companies made a number of large gas discoveries in the Krishna-Godavari (KG) basin off of India’s eastern coast, pushing up both the reserve base and production. However, production from some of the more mature fields have declined in recent years, and RIL cut the recoverable reserves of its two major gas fields in the major D6 block (D1 and D3) in the KG basin from 10.3 Tcf estimated in December 2006 to 3.1 Tcf in 2012 because of unexpected declines and reservoir performance problems.

Total gas production in India amounted to around 1.5 Tcf in 2012. The two biggest state-owned companies, ONGC and Oil India Ltd. (OIL), dominate India’s upstream gas sector. ONGC operates the Mumbai High Field, which provides a large amount of India’s natural gas supply. ONGC remains India’s largest natural gas producer, accounting for 62 percent of the domestic production in 2012 as reported in the company’s annual report. 

However, the government has encouraged private and foreign companies to enter the upstream sector in recent years. RIL is becoming a major upstream force because of natural gas discoveries in the Krishna-Godavari basin. RIL has a strategic partnership with BP, which has a 30 percent stake in 21 of RIL’s production-sharing contracts. Other major international oil companies do not have significant investments in India’s natural gas upstream sector. 

The KG-D6 field came online in early 2009, ramping up production to hit a peak of more than 2.4 billion cubic feet per day (Bcf/d) or 876 Bcf per year (Bcf/y), in 2010. However, the field has experienced production shortfalls in recent years, and output dropped to 0.4 Bcf/d (146 Bcf/y) at the end of 2013. RIL and BP plan to tie in production from satellite fields and invest $5-10 billion to restore the production of the D6 block to more than 2.1 Bcf/d (767 Bcf/y) by 2020.

ONGC and Gujarat State Petroleum Corporation Limited (GSPCL) are also developing several offshore areas in Krishna-Godavari basin. Another promising producing area is the Cambay basin in western India, where independent company Oilex has done some preliminary work assessing the potential for tight natural gas.

LNG

Indian companies are investing in new regasification facilities to meet the country’s rising natural gas demand. India was the world’s fourth-largest liquefied natural gas importer in 2013.

LNG has become an important part of India’s energy portfolio since the country began importing it from Qatar in 2004. In 2013, India was the world’s fourth-largest LNG importer, importing 638 Bcf, or 6 percent, of global trade, according to data from IHS Energy. Petronet, a joint venture between GAIL, ONGC, IOC, and several foreign firms, is the major importer of LNG supplies to India. Petronet owns two existing LNG terminals, Dahej (480 Bcf/y) and Kochi (120 Bcf/y). Shell (74 percent share) and Total (26 percent share) jointly own the Hazira terminal (240 Bcf/y), which operates as a merchant facility, importing only short-term and spot cargoes at present. India’s total regasification capacity now stands at 936 Bcf, and terminal owners have proposed capacity expansions at all existing terminals. Expansion under construction at Dahej will increase the terminal’s capacity to 720 Bcf by 2016.

Unexpected production declines in India’s KG-D6 gas field mean the country must rely on higher LNG imports. Average imported LNG prices have increased to three times the price of domestically produced natural gas because they are not subject to the government setting prices through the Administered Price Mechanism. Indian producers such as RIL have asked the government to raise the wellhead price for gas (the wholesale price at the point of production) as a way of justifying investment into deepwater projects. If the proposed gas pricing reform is implemented, there will be greater investment incentives for domestic gas development that could increase competition for LNG imports.

Qatar’s RasGas is India’s sole long-term supplier of natural gas, with two contracts for a total of 360 Bcf. In 2013, Qatar was the source of 84 percent of India’s total LNG imports, according to IHS Energy. India has been an active importer of spot cargoes following interruptions in the KG-D6 field production after 2010 and began receiving LNG cargoes from a variety of exporting countries. Nigeria, Egypt, and Yemen have become India’s largest short-term LNG suppliers.

Indian LNG importers actively sought supply from various new LNG sources and signed several short- and long-term purchase agreements in the past few years. India signed agreements to receive supply from Australia’s Gorgon LNG terminal and several U.S. terminals (Sabine Pass, Cove Point, and Main Pass) and from the portfolio of various global LNG suppliers such as BG, GDF Suez, Gas Natural Fenosa, and Gazprom. As Indian companies become more active in pursuing overseas upstream oil and gas plays, OIL has invested in gas projects in Canada (Pacific Northwest LNG) and an offshore gas project in Mozambique (jointly with ONGC) to secure LNG imports for India.