India tailors supply [NGW Magazine]
India’s LNG import and regasification capacity has been expanding steadily in the recent years as demand has risen; and the next few years will see further capacity additions. In the near future, five new terminals are expected to be commissioned: H-Energy’s Jaigarh floating terminal; AG&P’s Karaikal terminal; Adani’s Dhamra terminal; Swan Energy’s Jaffarabad floating terminal and Shapoorji Pallonji’s Chhara terminal. As these terminals come fully online, India’s overall capacity will exceed 65mn metric tons/yr in the next two to three years.
At present, India has six active terminals with a combined capacity of 42.5mn mt/yr. However, a few of these terminals are only used well below their designed capacity, owing to a lack of ‘last-mile’ connectivity: the onshore pipeline network is inadequate.
Some of the new terminals may also face the same problem. This infrastructure bottleneck is the primary reason why gas is only 6% of India’s energy mix, compared with the global average above 25%. If India is to reach its 30% by 2030 target, more gas needs to reach the end customers.
Pipeline projects have a long gestation period and the grid cannot reach remote areas. Although some ambitious pipeline projects, such as the 2,650-km JHBDPL project, also known as Pradhan Mantri Urja Ganga, are expected to be completed soon, the pipeline network will still be well short of what India needs.
Sensing an opportunity, many companies are looking to distribute LNG by road, railways or waterways – a concept otherwise known as ‘virtual pipeline’. Global majors have also shown interest in getting a bigger footprint in this business.
In March, Indian cryogenic liquid storage, distribution, and regasification solutions provider Inox India signed a memorandum of understanding (MoU) with Anglo-Dutch major Shell to develop a market for LNG supply by road from its 5mn metric tons/yr Hazira terminal in Gujarat. The companies plan to deploy infrastructure including logistics and receiving facilities at customer end and offer LNG access to the customers not connected to the pipelines.
“There is a growing demand for gas, the cleanest-burning fossil fuel, from the city gas distribution sector, commercial and industrial customers and as a fuel for heavy-duty transport. We are excited to explore this new segment and develop other such partnerships which will enable us to continue playing a key role in meeting India's long-term need for more and cleaner energy," Shell’s country head Ashwani Dudeja said.
Inox said: “This will help in increasing the penetration and consumption of clean, reliable and cost-efficient LNG to commercial and industrial users all over the country. The MoU also covers the co-operation in developing a larger market for LNG as a transport fuel for long haul heavy-duty trucks and buses.”
Inox India executive director Siddharth Jain said that the collaboration will make gas more accessible and that a larger gas-based industrial ecosystem was good both for the economy and the environment.
India is promoting greater use of gas in the economy in order to tackle air pollution. The south Asian nation has some of the most polluted cities in the world.
In February, New York-listed Chart Industries signed a letter of co-operation with ExxonMobil and state-run Indian Oil Corp, to develop virtual pipelines to bring gas to more users. The LNG will be delivered by road, rail and waterway.
In early 2019, Chart signed a memorandum of understanding with Indian Oil Corp to promote the development of the LNG market in India, focusing on modular liquefaction, regasification applications, LNG bunkering, fuelling stations and alternative LNG mobile transportation including ISO containers. Indian Oil Corp operates the 5mn mt/yr Ennore LNG receiving terminal, near the southern Indian city of Chennai. The terminal was inaugurated last year.
According to Chart, the letter of co-operation "expands the reach and potential scale within a significantly growing country that has committed to clean energy options."
“We believe this collaboration with ExxonMobil, a major LNG supplier with a local presence in India, coupled with our ongoing work with Indian Oil Corp will accelerate India’s ability to offer a cleaner energy solution within the growing cities and networks," said Chart CEO Jill Evanko. “We are excited to offer our cryogenic equipment to support what each party in this collaboration believes will accelerate clean energy progress while doing so with localised equipment manufacturing in India.”
National lockdown shocks demand
Although India’s gas and LNG demand in the long-term looks robust, the ongoing national lockdown in the country has created a lot of uncertainty about the demand outlook in the very short-term. The sudden halt in economic activities is expected to have a severe impact on the gas demand. On the evening of March 24, India's prime minister Narendra Modi imposed a three-week nationwide lockdown in an attempt to slow the spread of Covid-19. The lockdown came into effect on March 25 and at time of press was due to be lifted April 14.
“We could see a 15-20% hit to the gas demand though situation is evolving. Barring fertilizer, power and partially refineries, other sectors would all be impacted with city gas distribution (CGD) sector expected to witness a major drop. LNG imports should also decline as news flows suggest companies are contemplating issuing force majeure,” said senior research analyst at brokering firm Emkay Global, Sabri Hazarika.
Wood McKenzie’s senior analyst Vidur Singhal expects a similar sharp drop in demand. "The transport and industrial sectors have been impacted. Average daily gas demand was around 151mn m3/d in 2019. We expect about 18-20% reduction in daily gas demand post lockdown. Also, demand from refineries and fertiliser plants, and anchor gas customers, have reduced in line with their utilisation rates with significant downside risk if the lockdown is extended,” he said.
Citing sources, Reuters reported late March that Petronet LNG, India's biggest LNG importer, had issued a force majeure (FM) notice to Qatargas seeking to delay loading of LNG cargoes under long-term deals. Qatar is India’s biggest supplier of LNG. In 1999, Petronet LNG signed a long-term deal to import 7.5mn mt/year of LNG from RasGas (merged with Qatargas in January 2018). In late 2015, the two companies agreed on a new deal under which Petronet LNG would import additional 1mn mt/yr of LNG, taking the total annual long-term commitment to 8.5mn mt/yr.
India’s Gujarat State Petroleum Corp (GSPC) has also issued FM notices to its LNG suppliers, Reuters reported, adding the company has cancelled a tender to import 11 cargoes of LNG for deliveries in May 2020 to March 2021.
A senior vice president at rating agency Icra, K. Ravichandran, said that gas demand in the compressed natural gas (CNG) and commercial piped natural gas (PNG) segment could drop in the near-term.
“Among the major consumers of gas, demand from bulk consumers such as fertilisers, power, refineries, petrochemicals and other industrial units should remain mostly unaffected, as they are continuous process plants/essential utilities, unless Covid-19 issue reaches serious proportions wherein factory workers can't attend to their work,” Ravichandran said. “In the case of the city gas distribution sector, PNG (industrial) and PNG (domestic) should remain mostly unaffected, except in few industrial clusters wherein PNG demand could be hit. However, CNG and PNG (commercial) demand could plunge in the near term, due to severe travel restrictions.”
Ravichandran expects gas demand growth to slow in the near term, but to pick up sharply once things return to normal. “In view of the evolving nature of the pandemic, it will be too early to quantify the impact on demand,” he added.
The forecast of a decline in Indian LNG demand is bad news for the already oversupplied LNG market. India, the fourth largest LNG importer in the world, had been a bright spot as it soaked it up in large volumes. The country’s LNG imports spiked this year as prices have been trading at long-term lows. In January, India’s imports grew by 25% yr/yr and in February they were up by a whopping 68% yr/yr.
The cumulative imports of 30.81bn m3 (about 23mn mt) during the 11 months of the current financial year that ends on March 31 (2019-2020), were higher by 16.9% compared with the corresponding period of the previous year, government data showed. This year’s imports have already surpassed the previous financial year’s imports of 27bn m³ of LNG.
Terminal construction work
With all domestic and international flight grounded and no trains running, the 21-day lockdown has severely restricted movement of personal and equipment. Analysts believe this will affect work going on at terminal sites.
The most immediate impact may be seen on the Jaigarh terminal which is scheduled for commissioning in Q2 2020. “The project is located in the relatively affected state of Maharashtra. As the coronavirus outbreak is still under initial stages in India, it remains to be seen whether the commissioning gets delayed as the Indian government has started taking measures to curtail the spread of coronavirus through suspension of international flights, sealing state borders, and asking citizens to stay indoors,” GlobalData said in a report.
AG&P, which broke ground on its India terminal earlier this year, did not say if the work would be impacted but said it was co-operating with local authorities.
“In all countries where we operate, we are working collaboratively with the relevant authorities to ensure we fully comply with government directives and containment measures regarding the coronavirus pandemic. This includes India, where there is a temporary nationwide lockdown. As the situation is constantly evolving, it is inappropriate to comment on how this global emergency will impact our operations in any jurisdiction. Our priority is to protect our employees, clients, contractors and partners, while ensuring business continuity,” AG&P said.