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Indian LNG Struggles to Find Pipeline Capacity

Gas distribution to east of the country finds new avenues via specialised trucks though massive distribution pipeline investments remain key to facilitate sustained LNG growth

Data by the charity Global Energy Monitor shows that 62 Indian coal-fired power projects have been cancelled whilst the Indian government is targeting raising the share of natural gas in the country’s energy basket to 15% by 2030.

LNG will be key source of gas supply growth in India

A significant proportion of the necessary supply is likely to come from LNG imports. The country’s LNG imports grew by c. 5% in 2019, data from the LNG Journal’s Market Tracker shows. This growth was driven by Petronet’s Dahej and Cochin terminals, which grew imports by 28% and 6%, respectively, in 2019.

Lacking pipeline capacity in eastern India hampers use of LNG capacity concentrated in the west

However, India continues to struggle to distribute imported LNG to industrial users outside the terminals’ immediate vicinity due to a lack of gas pipeline capacity connecting the vast country. Notably, four of the five Indian LNG terminals – Dahej, Hazira, Dabhol and Cochin – are located on the subcontinent’s west coast with the capacity of the fifth – Ennore LNG in Tamil Nadu state – underutilised.

Tricky geology and lacking price incentives hamper domestic gas production

Relatively slow progress in domestic offshore gas exploration and production has led to the government pushing for years to expand India’s gas network and LNG import capacity. Although a US$7bln Reliance-BP joint venture (JV) – representing India’s largest foreign direct investment in 2011 – was supposed to boost offshore gas production from the prolific Krishna-Godavari Basin, the JV’s KG-D6 block proved to be geologically challenging. Notably, the block’s geology was among the key rationale for Reliance – an Indian industrial conglomerate – to partner with an international deepwater specialist in the first place.

However, the tricky geology of India’s offshore gas resources as well as diminishing investment incentives due to a convoluted national gas price policy and high taxes were largely responsible for a protracted net decline in Indian gas production.

Indian gas production saw massive decline between 2012 and 2018

India’s gas output had fallen by 31% in 2018 compared to 2012, though there has been a silver lining in the form of some modest net annual growth of roughly 2.4% in the period 2017-18, which was due to a boost in onshore production by 7.9%. Data for 2019 has yet to be published by the Ministry of Petroleum and Natural Gas.

India’s gas demand has seen robust growth since 2015

Meanwhile, India’s annual gas demand has been growing by an average of c. 4% since 2015, driven by particularly strong growth in the power sector and by demand for feedstock by heavy and petrochemical industries.

GAIL turned to cryogenic trucks to mitigate pipeline issue

With significant gas pipeline capacity yet to reach most parts of eastern India, GAIL – the national gas distributor – has hired a fleet of cryogenic trucks to transport imported LNG from the Dahej terminal in Gujarat to the city of Bhubaneshwar in Odisha state south of West Bengal. The truck journey takes roughly a week. Once in Bhubaneshwar, the LNG is regasified to be moved in cascades to CNG dispensing stations or fed into the local pipeline system.

Steep demand means operation can break even, but highlights lack of capacity

Steep demand growth in industrial centres lacking pipeline connectivity such as Bhopal, Mandideep, Indore and Mangalore allow GAIL’s truck operation to break even. However, it also serves as an impressive example of the severe lack of transnational pipeline capacity.

Concerted push across the country will be necessary for lower unit costs to achieve 2030 goal

Although India has almost 17,000km of pipeline in operation, the Ministry of Petroleum and Natural Gas calculates over 14,000km more will be needed to achieve the 2030 goal. Whilst GAIL aims to complete the ambitious 2,655km Pradhan Mantri Urja Ganga (PMUG) pipeline by year-end (construction began in May 2019), smaller gas pipeline projects such as the Cochin-Mangaluru-Bengaluru connector have suffered from severe delay due to extreme weather and engineering problems, which suggests the much larger PMUG project will not be completed on time.

Key to achieving the 2030 goal will be the driving down of the per unit cost of gas. Whilst India offers significant potential to add to global LNG demand growth, without an extensive national pipeline network, that potential will struggle to unfold.