(EnergyAsia, August 21 2016, Sunday) — Having never really dawned on India, the “Golden Age” of natural gas as coined by the International Energy Agency (IEA), could yet bypass the world’s third largest energy consumer altogether.


Home to some of the world’s most polluted cities, India recognises the urgency to increase the consumption of cleaner-burning natural gas to reduce coal’s 58% stranglehold position in the national energy mix. Instead, it has seen both the consumption as well as share of natural gas in the national energy mix fall since the turn of the decade.

According to BP, India’s natural gas demand fell by 18.3% from 55.7 million tones of oil equivalent (TOE) in 2010 to 45.5 million TOE last year at the same time that its total primary energy consumption surged nearly 35% from 520.5 million TOE to 700.5 million TOE. Natural gas’s share in the country’s energy mix is down from 10.7% in 2010 to 6.5% last year.

India’s natural gas consumption. Source: BP

In million tonnes of oil equivalent (toe)

2010                2011                2012                2013                2014                2015

55.7                 55.0                 52.9                46.3                 45.6                 45.6

As percentage of national energy mix

10.7%              9.8%                9.2%                7.8%                6.8%                6.5%

 

India’s failing natural gas strategy stands in sharp contrast to the success of China and other Asian countries in boosting the fuel’s role in their respective national energy plans. When the IEA launched its “Golden Age of Gas” vision in 2011, it had great hopes for India to join in the global effort to develop the infrastructure, policies and trade linkages for natural gas to eventually become the world’s fuel of choice.

The Paris-based agency had expected a surge in Indian demand for natural gas to generate electricity to help lower coal’s share in the global energy mix from 25% in 2010 to 21% by 2030. (Pg 21, Table 1.2). Using its own calculations and data that differ from BP’s, the IEA projected that India’s natural gas demand would almost double from 37.8 million TOE in 2008 to 72.9 mTOE by 2015 and to 93.6 mTOE by 2020. (Pg 23, Table 1, using conversion rate 1 billion cubic metre=0.9 million TOE).

These targets have proved to too ambitious. In an update four years later, the IEA found that Indian natural gas consumption had grown at a much slower rate and is unlikely to improve through the rest of the decade. With demand reaching just 45 m TOE in 2013, the IEA drastically slashed its forecast for Indian gas consumption to reach 58 m TOE by 2020. (WEO 2015, pg 57, Table 2.1).

The barriers preventing the natural gas market from taking off in India are likely to remain in place well into the next decade. Even with the on-going price collapse, as represented by the plunge in liquefied natural gas’s cost from more than US$20 per million BTU in early 2014 to a recent low of US$5.70 per million BTU, the fuel still costs more than oil and coal in India.

Consultant Ernst & Young said the fuel’s cost will remain high on account of the country’s inadequate gas transmission and distribution infrastructure, and limited terminal capacity to import LNG. This has created a catch-22 situation where consumers are deterred by the high cost of natural gas that, in turn, is discouraging companies from building the infrastructure needed to make the fuel widely and readily available throughout the country.

India’s biggest users of natural gas include power companies, fertliser manufacturers, refinery operators and petrochemical producers. Without their support, India’s main oil and gas companies are reluctant to make the costly investments needed to expand LNG import terminals, storage facilities and gas pipeline networks.

This stand-off is holding back India’s plan to develop gas-powered heavy industries and manufacturing, potentially clouding Prime Minister Narendra Modi’s vision to create an industrial backbone to modernise the economy. The government is aiming to raise the share of energy-intensive manufacturing in the economy from 16% in 2015 to 25% by 2022, said Ernst & Young.

So far, it’s not going to plan. The country’s “relatively under-developed” gas infrastructure, including a 17,421-km network, is far from well utilised.

“The fall in domestic gas production and low price affordability of imported gas in the power sector has resulted in gas-based power plants remaining under-utilised. Effective plant load factor (PLF) for FY15 was 21% and nearly two-thirds of the total gas-based installed capacity (23GW) was stranded,” said Ernst & Young in a 2015 report on India’s natural gas industry.

Its four LNG terminals, all located on the west coast, have a combined annual nameplate capacity to import and process 25 million tonnes of the fuel. Dahej and Hazira are located in the northern state of Gujarat while Dahbol is in central Maharashtra and Kochi is in southwest Kerala. Dahej, the largest terminal is capable of handling 10 million tonnes of LNG a year, while the rest each have a nameplate capacityf of five million tonnes.

In actual, however, the terminals are able to handle only a total of 17 million tonnes of LNG, due mostly to insufficient pipeline capacity and inadequate marine infrastructure at Kochi and Dabhol. (Pg 6). Their owners are under pressure from the government to upgrade and expand the facilities despite the uncertain outlook for natural gas sales in the country.

The experts are deeply divided.

“Projections for the future of natural gas in India vary with the IEA estimating a share of only 8% of the fuel mix by 2040, to India’s Petroleum and Natural Gas Regulatory Board’s estimate of 20% by 2025,” said Charles K. Ebinger, a senior fellow at the US-based Brookings Institute, in a recent report on India’s energy challenges.

Nevertheless, the Indian government is sticking to its plan to nearly double the country’s LNG import capacity to 47 million tonnes by 2025. It is providing subsidies and pool-buying services to encourage power and fertilisers companies as well as retail consumers to use more imported LNG.

“LNG plays a critical role in partially bridging the gas supply gap in the country. India is currently the world’s fourth-largest importer of LNG, behind Japan, South Korea and China,” said Ernst & Young. Between 2010 and 2015, India’s LNG imports grew at a compounded average rate of 11.1% to 15.5 million tonnes. LNG’s share in the country’s total gas supplies rose from 20% to 38% over those five years.

On the retail front, Ernst & Young reported that marketing networks are already in place to distribute natural gas to more than 50 cities throughout the country. The firm expects these networks to reach their full marketing potential by 2020.

India’s retail gas sector covers more than three million homes, 1,015 compressed natural gas (CNG) stations, 2.5 million CNG vehicles, 22,786 commercial and 6,087 small industrial users.