(EnergyAsia, October 21 2017, Saturday) — India must speed up the expansion of its oil and gas infrastructure as well as the pace of energy reforms to sustain the country’s recent rapid rate of economic growth, said three analysts with consultant Wood Mackenzie.


The analysts expect India’s natural gas consumption to grow by seven percent annually through 2025 while its rising oil appetite will require a significant boost to its existing 4.6 million b/d of refining capacity, currently the second largest in Asia. India’s domestic upstream sector will gain from the recent introduction of the Hydrocarbon Exploration and Licensing Policy (HELP) to attract private and foreign investments, but more needs to be done.

 

India’s natural gas outlook

Terence, Ang, Wood Mackenzie’s senior Asia gas and power analyst, has forecast India’s import of liquefied natural gas (LNG) to increase from 14.4 million tonnes in 2014 to 19.6 million tonnes this year.

New infrastructure to handle imports and distribution combined with rising domestic production will boost India’s use of natural gas by seven percent per year through 2025.

Amid the global supply glut, India’s state-owned Petronet has successfully negotiated for price reductions in its term contracts for LNG imports from Qatar’s RasGas and ExxonMobil, said Ang.

India can further boost domestic gas consumption by encouraging power companies to diversify from using coal as a feedstock.

While gas use may not rise much in the short term, Ang said any increase would “support the viability of major pipeline infrastructure, which in turn allow smaller users in the vicinity to gain access to gas.”

For now, natural gas is not competitive as it is more costly than fuel oil and petroleum coke.

“The government has allowed pricing freedom for domestic gas produced from the Hydrocarbon Exploration and Licensing Policy (HELP) blocks. This, together with the revised domestic gas allocation order, will force industrial, commercial and power users to pay market prices for gas,” he said.

 

Oil refining capacity shortfall

Wood Mackenzie expects India to add to its 21 refineries which have a total capacity of 4.6 million b/d that are barely keeping pace with the country’s growing fuels demand.

India’s oil consumption surged by 7.8% to 4.489 million b/d last year, according to BP. While consumption is expected to grow at a slower rate for the rest of this decade, India will likely still be adding at least 200,000 b/d of new demand each year.

“Demand has been surprisingly strong over the last two years but we expect rising retail fuel prices and a slowdown in rural economic growth to curb momentum,” Wood Mackenzie said.

“Our base-case outlook has India’s oil demand rising by 200,000 b/d in 2017 – significantly lower than the 290,000 b/d increase in 2016.”

The company’s research director for Asia refining, Sushant Gupta, said Saudi Aramco is interested to participate in the investment of a new 1.2-million b/d refinery in the west coast state of Maharashtra. Construction could start by end-2019 with completion expected four years later.

Gupta observed that India’s state-owned companies, which own 60% of the country’s refining capacity, “have traditionally been slow in adding refining capacity,” implying the country will continue to be a major importer of fuels.

 

Domestic production

The Indian government must free up the marketing and pricing of domestically-produced gas if it wants to encourage investment in the country’s upstream oil and gas sector, said Wood Mackenzie’s senior upstream analyst Alay Patel.

He hailed the government’s introduction of HELP early this year for simplifying the country’s notoriously complicated licensing system for oil and gas explorers.

“Policy initiatives ranging from gas pricing incentives to contractual extension clarity will help boost domestic supply,” he said.

The government of Prime Minister Narendra Modi has set a target to reduce India’s oil import dependence from 80% today to 70% by 2022. It plans to achieve this by boosting domestic oil and gas production.

Patel said the government will have to free up marketing and pricing controls over domestically-produced natural gas so that private and foreign companies will be incentivised to invest in India’s frontier hydrocarbon reserves.