City gas usage to lead India’s demand for LNG, says Platts report
- Cut in fees for smelters is a risk for domestic copper producers
- No ripple in bank stocks ahead of second wave of provisioning
- With deposits contracting and lending going up, why should banks lower interest rates?
- Opening bell: Asian markets open subdued; Tata Communications, EIH in news
- Want to short bitcoin, anyone?
Mumbai: City gas usage will drive demand for natural gas in India, energy and commodities information provider Platts said in a report.
City gas includes piped gas delivered to homes, compressed natural gas used in automobiles and gas delivered to industrial units. Apart from city gas, the main users of natural gas are fertilizer units and the power sector.
“The main change (in demand) will occur for city gas, which will see its share of domestic gas usage rise to 24% in 2021 from the 20% used in 2016. This is in line with the government’s goal of increasing city gas availability for households and transportation,” the report titled Feeding the Tiger: search for transparently priced Indian LNG said.
Thirteen states in India have city gas distribution (CGD) projects, connecting 3.3 million homes. It is expected to reach 10 million households over the next three years, but the scope for expansion is even larger, the Platts report said.
Commercial and industrial consumers are also taking advantage of the increased availability of city gas.
“Seventy-five city gas networks have been authorized, suggesting that their number is on course to exceed Petroleum and Natural Gas Regulatory Board forecasts of 60 city gas projects by 2022 and 240 networks by 2030. The rapid pace of adoption and strong government support means the city gas sector is expected to show the fastest relative growth among the gas demand sectors of up to 12%, to nearly 14 billion cubic metres (bcm) in 2021,” Max Gostelow, pricing analyst, Asia LNG and Marc Howson, senior managing editor-LNG wrote in the report.
Natural gas accounts for only 6.5% of India’s energy mix, compared with almost 60% for coal. The relatively low penetration rate, compared with the global average of 24%, is a result of India’s abundance of relatively cheap domestic coal, infrastructure bottlenecks choking gas supply, price uncertainty over gas imports, and low domestic gas production.
With domestic gas production set to rise to 37 Bcm by 2021 and consumption to hit 72 Bcm over the same period, additional demand will have to be met by LNG imports.
Over the next five years, Indian LNG demand is expected to grow on average 10% annually, reaching around 30 million metric tonnes by 2020, with regasification capacity expanding by almost 60% to over 45 million metric tonnes by 2021. LNG imports are rising and pipeline networks are growing in India, the report said.
For regasified liquefied natural gas (LNG), the main growth sector will be fertilizer, which is expected to consume 16 bcm of regasified LNG by 2021, 38% of the total imported LNG, from its 34% in 2016.
The fertilizer sector remains India’s largest single gas demand sector, representing around one-third of demand. This included over 6 million metric tonnes of LNG imports in 2016, 20% more than the previous year. “Gas usage from the fertilizer sector is expected to grow by 8% annually, reaching over 26 bcm by 2021, driven by the government’s plans to increase domestic fertilizer production and become fully self-sufficient for domestic fertilizer consumption needs by 2022. Regasified LNG is expected to meet around 60% of this,” the report added.
The power sector is India’s second largest gas user, accounting for around 25%. India has over 24 giga watt (GW) of gas-fired power generation plants, but 14 GW is effectively stranded by a lack of gas availability, while the remaining 10 GW has also been operating well below capacity. The sector is expected to grow around 1% to 2021.
Due to a lack of international pipeline connectivity, and limited growth of domestic production, this demand will be met by a 10% annual rise in LNG imports over the next few years. This LNG demand should outpace the volumes supplied under current long-term contracts by Petronet LNG, Gail India, and Gujarat State Petroleum Corporation.
Due to declining domestic production, and no international pipeline connectivity, LNG imports have proven the only means of providing the supply to meet the country’s increasing gas demand in recent years.
“As a result, Indian reliance on gas imports in the form of LNG grew to around 50% in 2016. In 2016, India imported over 19 million mt/year of LNG, an over 50% increase from 2013 levels. LNG imports are expected to continue growing by 10% annually over the next five years, overtaking domestic production in 2019, before surpassing 30 million mt by 2020,” the report added.