India: A Price Sensitive LNG Demand
India is the 13th largest gas consumer in the world. It is also the sixth largest LNG importer, importing 16 out of 70 bcm of natural gas that it consumes.
LNG in India mostly used for complementing domestic gas usage.
To fuel its growing economy, the increase in India’s energy consumption will lead to the rise in the share of natural gas in the Indian energy basket from 11% today to 20% in 2025. In 2005, gas constituted only 8% of India’s total energy consumption.
India has expanded its domestic gas production in order to address this increase in demand. Although it has taken efforts to develop its pipeline network into a national grid, it also relies heavily on imported gas. India’s growing energy demand is marked by a greater dependency on imported natural gas. It is projected that India’s gas demand of 243.34 mmscmd will be used to generate power between 2014-2015, as compared to 87.71 between 2010-2011. Most of the gas demand will come from industries, CNG transport, refineries, baseload power and new fertilizer plants – India is the third largest fertilizer producer in the world. Its fertilizer capacity is expected to expand by approximately 35%.
India’s LNG demand is sensitive to, and dependent on, price. The LNG demand was low when gas was at $16 17/mmBtu. However, when gas was priced at $11 12/mmBtu, this was accompanied by a high demand.
“If the price is right, India is the place for more energy, for LNG especially,” Sh R K Garg, Director of Finance at Petronet LNG Ltd, said at the World LNG Series Asia Pacific Summit.
Buyers are willing to pay more for gas, compared to other sectors, because liquid fuel comes at a much higher cost. Various new refineries such as Panipat, Bina, Bhatinda, and Paradeep are expected to come on-stream soon. Although LNG is used mostly to complement domestic gas usage, there is a deliberate effort to expand facilities now and in the near future, signaling a serious need and demand for natural gas. Between 2011-12 and 2012-13, additional gas based capacity is expected to be around 12200 MW.
Currently, India is looking for partnerships between suppliers and buyers in upstream and midstream infrastructure development. Going forward, India’s energy plan consists of an optimal mix through tie-up of 60-70% LNG on long term and balance through short and/or spot basis.