Despite the liquefied natural gas (LNG) market being constrained in the recent past, India has maintained its position as the world’s fourth largest buyer of LNG after Japan, South Korea and China. The market first experienced strong fluctuations in 2020, triggered by the pandemic-induced constraints on the economy. However, a year later, owing to lower domestic production, coupled with higher demand and lower prices at a major distribution centre, Henry Hub, imports increased by 66 per cent year on year to 8,181 million metric standard cubic metres (mmscm). The trend reversed in 2022, as imports fell further due to escalating global prices and a rise in domestic production. In continuation of the diverging trend, in April 2023, the total imports increased, owing to the softening of the Asian spot LNG prices in 2023, which led to a resurgence of interest from Indian buyers.
The current upsurge in demand is being propelled by key sectors such as fertilisers, power, city gas distribution, refinery and petrochemicals. Considering the present market dynamics and demand, India is well positioned to experience a substantial increase in its LNG imports by end 2024. Due to the falling LNG costs and the growing demand for power generation, India is once again prioritising LNG imports. During August 2024, LNG imports reached around 2 million tonnes, an annual increase of 2.4 per cent. Further, industry experts forecast a substantial rise in imports to 27 tonnes in the 2025 with 15 percent rise in the country’s imports of LNG during 2024-25. This estimated increase is indicative of the country’s rising energy demands and the urgent need to diversify energy sources, particularly by leveraging existing domestic LNG facilities.
Current trends
India currently operates seven LNG import facilities with a combined capacity of approximately 47.7 million tonnes per annum (mtpa). These facilities include Petronet LNG’s Dahej and Kochi terminals, Shell’s Hazira terminal, Dabhol, Ennore, Mundra and Dhamra LNG terminals. The capacity of Petronet LNG’s Dahej terminal is being increased to 22.5 MMTPA from 17.5 MMTPA as India continues on a journey towards energy self-sufficiency.
During April-July 2024, the 17.50 million tonnes per annum (mtpa) Dahej terminal operated at 106.80 per cent capacity, while the 5.20 mtpa Hazira terminal operated at a 50 per cent capacity, according to the Petroleum Planning and Analysis Cell (PPAC). The 5 mtpa Dhamra LNG terminal operated at around 27 per cent capacity, the 5 mtpa Dabhol LNG terminal at 40 per cent capacity, the 5 mtpa Kochi LNG terminal at 22.50 per cent capacity, and the 5 mtpa Ennore LNG terminal at 25.20 percent capacity.
India’s liquefied natural gas (LNG) imports witnessed an increase in August compared to the same month last year, as per preliminary data from the Petroleum Planning and Analysis Cell (PPAC). Prorated LNG import for August 2024 was 2,794 mmscm which was 2.40 per cent higher than the corresponding month of the previous year. The prorated cumulative import of 15,064 (P) MMSCM for April- August 2024 is higher by 17.40 per cent compared with the corresponding period of the previous year.
On the production front, India’s natural gas gross production for August 2024 was 3,048 mmscm which was lower by 3.70 per cent compared with the corresponding month of the previous year. The cumulative gross production of natural gas of 15,183 mmscm for April-August 2024 was higher by 2.2 per cent compared with the corresponding period of the previous year.
On the other hand, the Chhara LNG import terminal in Gujarat would receive its commissioning cargo later this year after it failed to unload the cargo from the 2015-built 159,800 cubic metre. India’s Hindustan Petroleum, a unit of state-owned ONGC, aims to launch its delayed Chhara LNG import terminal by October 2024. Further, in June 2024, ONGC and Indian Oil Corporation Limited signed an agreement to set up a new LNG plant near the Hatta gas field in the Vindhyan basin. An MoU has been signed for the same. This LNG facility will significantly enhance the Vindhyan basin’s status- upgrading it from a Category II basin to a Category I basin.
Reducing import reliance
India needs to prioritise the diversification of its energy sources to achieve energy security and reduce dependence on the expensive imported LNG. In a way, India’s reliance on external sources for LNG has made the country’s energy security susceptible to global events. For instance, LNG supply to India was disrupted due to the Russia-Ukraine conflict. Moreover, a subsidiary of the Russian energy major Gazprom, Gazprom Marketing and Trading Singapore, now a German company called Sefe Marketing and Trading, had defaulted on supplying eight shiploads of LNG under a 20-year deal.
In June 2024, LNG imports reached a nearly four-year peak, driven by multiple factors. Gas-based power plants operated at significantly higher capacity utilisation rates than their typically subdued levels, responding to a surge in electricity demand, precipitated by severe heatwave conditions. This uptick in LNG imports can be attributed to several key factors – first, the favourable pricing and abundant availability of LNG in the international spot market, and second, the government’s concerted efforts to boost the power production to meet the heightened demand during summer, amidst severe heatwaves. These combined elements led to a notable increase in LNG purchases. This development has highlighted the flexibility of gas-based power generation in responding to short-term demand fluctuations and the importance of maintaining a diversified energy portfolio to ensure energy security.
However, concerted efforts are still needed to minimise the dependence on imported LNG, considering previous supply defaults. This could be achieved by augmenting the domestic gas supply by diversifying energy sources. Investing in coal bed methane and coal gasification technology, for instance, could enable efficient use of the abundant domestic coal reserves. At Talcher, India’s first urea plant utilising coal gasification technology is being revamped. Once operational, it is expected to substantially reduce the LNG import bill. In addition, biomass gasification has the potential to decrease reliance on imported LNG for electricity generation and fertiliser production.
Future outlook
As a market that has shown a straying pattern in the recent past, the outlook remains uncertain with operational challenges affecting five of the seven existing terminals. These challenges stem from inadequate supporting infrastructure and fluctuating natural gas demand.
Of India’s total 47.70 mtpa regasification capacity, only two terminals have maintained consistent operations since their establishment, Petronet LNG’s Dahej facility (17.50 mtpa) and Shell’s Hazira LNG terminal (5.20 mtpa).
As per CareEdge Ratings, India’s reliance on imported LNG is projected to decrease to around 45 per cent by 2025-26, down from 53 per cent in 2020-21. This change is attributed to an increase in domestic natural gas production, with nearly 30 million standard cubic meters per day (MMSCMD) of new production added over the past three years. An additional 15 MMSCMD is expected to come on-stream in 2024-25.
Over the years, the government has implemented strategic initiatives aimed at augmenting domestic production through new exploration ventures and the application of enhanced recovery techniques in existing fields. These measures are further aimed at maintaining a stable domestic supply. Regulatory measures including adjustments to domestic pricing mechanisms, efforts to stabilise imported gas prices, ensuring adequate LNG capacity and expanding the gas pipeline infrastructure have also made the environment favourable to pursue domestic production on a large scale.
Collectively, these actions are expected to facilitate a transition towards a greater share of natural gas in the country’s energy mix. This multifaceted approach reflects a comprehensive strategy to enhance energy security, promote sustainable growth in the natural gas sector and optimise the balance between domestic production and imports.