Priyank Srivastava
Historically, India has relied on coal to generate power, liquid fuels as feed stock, and oil for its transport sector. But, for environmental reasons, India needs to focus on cleaner fuels. Natural gas has emerged as the fuel of choice for many industries in India owing to its environmental benefits and higher economic efficiency. However, Indias natural gas market is seeing a supply deficit due to its low domestic production.
The demand and supply gap is increasing, and there is no reason it will stop. MarketsandMarkets expect that the demand for natural gas will reach about 705 mmscmd by 2029-30, up from roughly 260 mmscmd in 2014-15. Demand for natural gas has increased significantly due to the demand from the fertilizer and power sector, and cumulatively accounted for more than 60% of gas consumption in 2014. The demand is also driven by its growing usage in the city gas distribution (CGD) sector and industrial sectors, such as refining and petrochemicals. Rising concerns on carbon emissions have also contributed to the demand for natural gas in the country.
Sources: Vision 2030, Natural Gas Infrastructure in India and MarketsandMarkets AnalysisOver the years, several routes for gas pipelines have been proposed, such as the Iran-Pakistan-India (IPI) Pipeline, Oman-India Deep Sea Pipeline, and the much talked of Turkmenistan-Afghanistan-Pakistan-India (TAPI) Pipeline.
All these projects were limited only till the drawing board, except for TAPI which made a little progress this year. The 1,735 km gas pipeline will run from Turkmenistan to India via Afghanistan and Pakistan. The pipelines designed capacity is 33 billion cubic meters of gas per year, and investments are estimated at around $7 billion. The multi-billion dollar TAPI project could be off to a year-end start, as the legal framework is expected to be in place by December this year, followed by the announcement of the consortium. However, the TAPI pipeline faces an uncertain future with the recent oil price fall, ambiguity regarding transit via Afghanistan, and an increase in the estimated project cost.
The IPI pipeline was envisaged to link the South Paras Gas field in Iran with India via Pakistan. The total length of the proposed pipeline is 2,700 km, costing $7.5 billion (current cost may be much higher) to transport 20-100 bcm per year. Initially, this project was planned to link Iran and Pakistan. India later joined as a partner but withdrew, citing geopolitical and security reasons, and of course the US and EU sanctions on Iran.
Another project is the Oman-India Deep Sea pipeline, which South Asia Gas Enterprise (SAGE) and Fox Petroleum claim to be the most promising option. The project intends to transport more than 200 bcm of natural gas to India over a period of 20 years. The planned pipeline is about 1,300 km long, and will be laid at a depth of 3,400 meters below the seabed. It will connect the Middle East Compression Station near Oman with the receiving terminal near Gujarat. The estimated cost of this project is $4-5 billion and can be executed in about five years.
It should be noted that this project will definitely overcome the security issue of the IPI and TAPI projects, but Oman does not have large gas reserves when compared to Iran and Turkmenistan. Oman has 0.7 tcm of gas reserves with reserves-to-production ratio of 24 years. Hence, it makes no sense to build infrastructure which will be obsolete
soon if Iran is not under consideration.
Now, it is expected that Iran will be freed from almost all economic and financial sanctions in the coming six months, and India should kickstart the IPI pipeline talk which has been in the doldrums. The IPI pipeline faces a serious problem of security as the pipeline passes through the area where the Taliban has a stronghold. The TAPI pipeline faces the same concern with double the risk as it passes through Afghanistan and Pakistan. In Afghanistan, the TAPI pipeline passes through Kandahar, which is considered the spiritual home of the Taliban. It is clear that both the TAPI and IPI pipelines face serious security threats but not supply challenges, as both the countries have massive amounts of gas reserves. In a nutshell, the TAPI pipeline traversing Afghanistan and Pakistan is more risky than IPI, which has to cross only Pakistan.
The TAPI and IPI pipelines are not feasible options, due to aforementioned reasons. The Oman-India Deep Sea pipeline looks like a promising alternative, but in reality it will remain a pipe dream.
The TAPI and IPI pipelines are not feasible options, due to aforementioned reasons. The Oman-India Deep Sea pipeline looks like a promising alternative, but in reality it will remain a pipe dream. Since Indias domestic production of natural has not been increasing and the cross-border pipeline is not on the cards anytime soon, importing LNG is the only option to meet the rising natural gas demand in the country.
LNG is the only feasible option, but an expensive one. With a delivered price of $12.33/mmbtu, it is not easy for the fertiliser and power sector to absorb such high-priced LNG. We are already in a low oil price scenario, and had it been a high oil price scenario it would be next to impossible to feed the fertiliser and power sector with LNG as it is oil-linked.
[su_pullquote]If the grey situation of low domestic gas production is allowed to continue, India will have no option but to import more LNG as the fuel source for its fertiliser and gas-based power plants.[/su_pullquote]
Over the past five years, there has been an increase in LNG imports. Currently, India imports around 13.7 million tons of LNG, which accounts for approximately 33% of the total supply. Future LNG imports will depend on the expansion program of LNG terminals in India, and the international spot price for LNG. If the grey situation of low domestic gas production is allowed to continue, India will have no option but to import more LNG as the fuel source for its fertiliser and gas-based power plants. In view of the prevailing situation of gas production and supply, and the price-sensitive nature of the fertiliser and power sector, the government is promoting gas-price pooling options to meet the sectors gas shortage.
LNG, not the cross-border gas pipeline, will play a crucial role in meeting Indias energy demand in the future.
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Priyank Srivastava works as a Senior Analyst, specialising in oils and gas, for MarketsandMarkets.