India's natural gas future

DHARMENDRA PRADHAN, India's petroleum minister, says that the world's second most populous nation has committed to carbon emission reduction and that natural gas will play a key role in India's drive to combat climate change. In order to increase the percentage of natural gas reserves in India's energy basket, the minister favors increasing domestic gas production as well as importing more LNG.

As India launched this initiative, Pradhan specifically mentioned his desire to increase natural gas usage from the current 6.5% market share to 15%, which is still below the world average of 23.8%.

From 2011 to the present, India has seen a 32% decline in domestic gas production, which is matched by a near equivalent rise in LNG imports (term and spot cargo) of 38%, which indicates the growing demand for gas in India. According to the Petroleum & Natural Gas Regulatory Board, this demand is expected to soar at a CAGR of 6.8% from 242.6 MMSCMD in 2012-13 to 746 MMSCMD in 2029-30.

The future of natural gas in India will depend primarily on the availability of natural gas and adequate infrastructure to facilitate its flow to both existing and prospective markets.

India's natural gas sector continues to be in a transition phase. The success of the Krishna Godavari basin (KG-D6) that set the pace for current natural gas development, leading to the growth of sectors such as fertilizer, power, and city gas distribution. However, gas production in the KG-D6 has fallen significantly after peaking in March 2010. This has prompted the government to re-allocate the limited availability of gas as per the gas utilization policy, among core and non-core sectors. Allocations in the core sector are prioritized for gas-based fertilizer plants that produce subsidized fertilizers. This is followed by gas-based LPG plants; gas-based power plants that supply power to distribution companies at regulated tariff; and city gas distribution. Non-core sector users are allowed to use re-gasified LNG (RLNG), imported under an open general license.

As a result of the sharp drop in domestic gas production, several gas-based power generation plants were idle. This resulted in government intervention aimed at getting the plants back on line and producing electricity. On March 25, 2015, the Cabinet Committee on Economic Affairs (CCEA) agreed to revive these stranded power plants by importing incremental RLNG.

The current glut of LNG, resulting from low global gas prices, has provided incentive for greater reforms, particularly in India's upstream sector. On March 10, 2016, the Indian government introduced a new Hydrocarbon Exploration Licensing Policy, which covers all kinds of hydrocarbons, such as oil, gas, coalbed methane (CBM), and shale gas, under a single licensing framework using a revenue-sharing model with an open acreage policy. Marketing and pricing freedom was given for new gas production from deepwater, ultra-deepwater , and high pressure-high temperature areas.

In order to further boost upstream exploration, the petroleum ministry decided in September 2016 to propose a new market price for natural gas produced from CBM blocks. This is intended to benefit upstream producers Reliance Industries Limited and Oil and Natural Gas Corporation Limited (ONGC).

Additionally, Petronet LNG successfully renegotiated a long-term LNG price arrangement with Qatar's RasGas intended to boost India's LNG imports and feed its gas demand. However, India badly needs to diversify its supply sources and would do well to tap Iran and Australia, which are well placed to challenge Qatar's dominance. India is also considering exempting LNG from import duties, similar to what it does for crude oil.

India is also considering several transnational gas pipeline options, such as Turkmenistan-Afghanistan-Pakistan-India (TAPI), Iran-Pakistan-India (IPI), and Myanmar-Bangladesh-India. But there remain significant concerns on the progress of TAPI and IPI pipelines, due to deteriorating relationship between India and Pakistan. The recent nuclear deal between Iran and the Western countries and technological advancements in undersea gas pipelines has also opened up a new pipeline avenue, the Iran-Oman-India gas pipeline. This pipeline is widely considered to be the safest of all the options.

As far as India's trunk pipeline is concerned, it has remained slow on covering every nook and corner of the country with its gas grid. Since a National Gas Grid was conceptualized in 2000, India has managed to build 16,249.91 kms (more than 10,000 miles) of natural gas pipelines. Another 12,687 kms (7,900 miles) are under construction. At present, the gas grid mainly connects gas supply with customers in Northern and Western India, while Eastern India is yet to be connected.

With the approval of additional funding to develop the 2,539-km (1577-mile) Jagdishpur-Haldia and Bokaro-Dhamra Gas Pipelines, the eastern states of Bihar, West Bengal, Jharkhand, and Orissa will join the gas grid.

Thus, India has undertaken several initiatives and policy interventions across the natural gas value chain, which can shape the nation's natural gas future. The next step is to address additional challenges. For instance, current low domestic gas pricing at about $3.06 per mmbtu puts companies like ONGC at a disadvantage, especially if it prohibits ONGC from carrying out more projects. Similarly, there is a need to push for small-scale LNG projects, which would interface with existing gas pipelines.

India can secure its natural gas future by addressing these and other challenges.

Manish Vaid, a junior fellow at Observer Research Foundation, researches energy policy and geopolitics. He holds an executive post-graduate diploma in petroleum management (with a specialization in the oil and gas sector) from Pandit Deen Dayal Petroleum University, Gandhinagar, Gujarat. Views expressed here are his own.