With many of India's largest oil and gas companies looking to expand the country's LNG regasification capacity, many believe 2013 will mark a turning point for the gas retail industry, which is in growing need of more supplies.

The shift towards greater LNG imports has already started this year, after state-controlled gas distributor Gail commissioned its 5 mtpa Dabhol terminal in Maharashtra. India has two other terminals - Hazira and Dahej, both in Gujarat - and a fourth - the Kochi facility in Kerala - is due online in the near future.

"The gas retailing space in India is going to witness high growth because of new linkages and an expanding consumer base," Gail Chairman and Managing Director BC Tripathi told Interfax. "Entities, including Gail, do not want to lose out on opportunities.''

A month after commissioning the terminal, in fact, Gail signed gas transmission agreements for two power plants in Bangalore, one of India's business hubs. The gas will be carried along a 1,000 km pipeline with a capacity of 16 million cubic metres per day (MMcm/d).

With new projects coming online, India's LNG imports are expected to rise to 73 MMcm/d in 2012-2013 and 105 MMcm/d in 2013-2014, according to the Indian Ministry of Petroleum and Natural Gas. This means the share of LNG in India's total gas consumption would rise from 25% in 2011-2012 to 41% in 2012-2013, and 50% in 2013-2014.

Future plans

India's first three LNG import projects were centred on the northwestern state of Gujarat - which has seen rapid economic growth over the past decade - and the country's business capital of Mumbai, in Maharashtra.

However, future developments are focused on the eastern state of Andhra Pradesh, which was expected to receive large volumes of gas from the offshore Krishna Godavari D6 (KG-D6) Block. Instead, the block's production has disappointed, leaving a number of new gas-fired power plants in the state without supply.

"These investments will feed the rapidly industrialising states of Andhra Pradesh, Tamil Nadu and Orissa," T Shridhar, a former director at the petroleum ministry, told Interfax. "The need is the result of the eastern offshore KG-D6 gas fields' failing to deliver on projected output."

Gail is one of the companies looking to build a regasifier in Andhra Pradesh, after signing an agreement for the 3.5 mtpa Kakinada facility with GDF Suez and the state government.

State-run Petronet LNG, likewise, is planning to build the 5 mtpa Gangavaram terminal in Andhra Pradesh by 2016, and carrying out a feasibility study for a terminal at Ennore, in the southeastern state of Tamil Nadu.

Royal Dutch Shell, which operates the 3.6 mtpa Hazira terminal, also said in May 2012 it was working with India's Reliance Power to build an FSRU near Kakinada and expected to begin importing around 5 mtpa in 2014. Reliance Power has built a 2.4 GW gas-fired generator in Andhra Pradesh - the largest in the country - but has been unable to start it because of the decline in KG-D6 production.

"India is an important market for LNG, and the states of Gujarat and Andhra Pradesh have the highest demand for gas in India," De la Rey Venter, Shell's global head of LNG, said at the time. Shell is also working to expand the Hazira terminal's capacity to 5 mtpa by the end of this year, he added.

Over-optimistic?

While the Indian government and industry have touted the potential for filling the country's supply-demand gap with LNG in the next few years, analysts at Wood Mackenzie said the shortfall will continue to be a problem - especially as the KG-D6 Block's output continues to decline. The block's production fell from 20 billion cubic metres in 2010 to 11 bcm in 2012, and partners Reliance Industries and BP do not expect to reverse the trend until at least 2014.

"This will constrain gas availability to the market, mainly impacting the power sector in the medium term," Nicholas Browne, Wood Mackenzie's senior gas market analyst, said of the KG-D6 Block's decline in a report published in February.

"In the longer term, reduced production will preclude the development of greenfield fertiliser production, as it is not economical to develop facilities purely based on LNG imports. In addition, LNG demand growth in other industrial sectors is further limited by reduced economic growth expectations," Browne added.

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Copyright 2013 Interfax News Agency. All Rights Reserved.

(Originally published Feb. 26, 2013, in Russia & CIS Energy Newswire.)