Burning bright why natural gas has a strong outlook in India
A confluence of factors are creating optimism in India’s natural gas sector. India accounts for less than one percent of global production. The country is, however, a significant natural gas consumer – the world’s 14th largest in 2016. India is also the world’s fifth largest liquefied natural gas (LNG) importer – and LNG prices have fallen significantly.
This is a buyer’s market, as IOCL’s 2016 – 17 Annual Report noted, “Increased global gas availability and the lower gas prices have come as welcome developments to provide a big boost to the gas sector in India and presentsattractive growth opportunities to players in the business.”
The US’ rise as a gas exporter has been critical in the fall in prices. We saw a sign of the new market dynamics in March when GAIL’s first US LNG consignment sailed from Ceniere’s Sabine Pass LNG terminal. The US exporter will supply GAIL with circa 3.5 million tonnes of LNG per annum.
The government is seeking to stimulate gas exploration. Moves include the October 2017 announcement of relief for petroleum exploration and production in the Goods and Services Tax. The Directorate General of Hydrocarbons, meanwhile, has indicated that the next auction of oil and gas fields will cover reserves twice those offered in the first auction round.
Factors underpinning the demand for natural gas include growth in the fertilizer sector – the largest consumer; and increased need for city gas.
Government initiatives are also having an influence. To cut pollution and greenhouse gas emissions the centre is seeking to incentivise the use of alternative vehicle fuels. These include compressed natural gas. In response IOCL plans to sell compressed natural gas for vehicles through gasoline and diesel retail outlets. Petronet has announced similar initiatives.
Natural gas’ role in power generation is more complex. The government has shown a determination to modernise power generation, and provide a reliable supply for all, most recently through policies like Saubhagya.
Much new investment is in renewables, especially solar, while coal remains the dominant feedstock. Recent years have not been kind to investors in gas-fired power plants, with many running below capacity due to the price and inefficiency of gas supplies.
As a feedstock, however, natural gas has advantages. Compared to the average emissions from coal-fired generation, natural gas produces half as much carbon dioxide, less than a third as much nitrogen oxides, and one percent as much sulphur oxides. While air quality remains an issue, gas presents part of the solution.
Renewables alone cannot meet India’s energy requirements. Thermal baseload generation will remain for the foreseeable future. Renewable energy, and especially distributed generation such as rooftop solar, can have a profound impact on demand curves. Of the three fossil fuels, natural gas offers power plant operators the shortest start-up time. The ability of gas-fired power stations to ramp-up more quickly means they are a viable baseload option when communities using power from renewable sources face a deficit.
In October 2017 oil minister Dharmendra Pradhan told executives from some of the world’s leading oil and gas companies, “Gas-based power can play a big role in integrating renewables to the grid,” adding that gas’ share of India’s feedstock mix should double to 15 percent.
India’s natural gas plans will be impossible without import infrastructure investments. With no pipelines likely in the short to medium term, this investment will focus on LNG receiving terminals. According Platts Indian LNG imports should rise by 10 percent annually; while IOCL has outlined plans to create the capacity to import about 13.5 mt of LNG in the next five years.
Major state-owned companies like IOCL favour fixed terminals over floating storage and regasification units (FSRU). This is because fixed terminals offer greater control – both in their capital and operational phases. FSRU projects also require a significant role for overseas expertise from specialists such as Golar, Exmar and Excelerate.
But floating solutions have a role in developing India’s LNG import capacity. In July 2017 Swan LNG Private Limited awarded Black & Veatch the EPC contract to deliver India’s first FSRU, for the 5 million metric tonnes per annum plant at Jafrabad, Gujarat.
As LNG import infrastructure develops, and the role of gas power plants is reassessed, co-locating infrastructure offers a synergy between regasification terminals and gas power plants, by utilising LNG’s ‘cold energy’ to chill gas turbine inlet air. This makes regasification and gas power assets more efficient and cheaper to operate.
So, as we enter a significant chapter in India’s growth story. natural gas should have an increasingly important role to play.