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The Indian government intends that natural gas will become a far bigger proportion of the mix of domestic energy consumption in the future. Currently, gas (both imported and produced) forms just over 6% (or 58 Bcm for the year 2017-2018) of the energy requirement, with recent government policy statements envisages this to rise to 15% by 2030.

Source: BP Statistical review of World Energy 2018

Source: BP Statistical review of World Energy 2018

 

Major investment in production from offshore gas fields (see below) is one element in the official plans, but is insufficient to meet demand.

Intergovernmental talks have been going on for years on major gas pipeline projects (from Oman, from Iran via Pakistan) but the progress has been snail-like. There are major geopolitical considerations which are impeding progress. So, the keystone to the policy is intention is to fill this energy gap by extending significantly LNG imports. Historically, Qatar has been the predominant supplier.

With the present LNG import of around 20 MMt/a, India is world’s fourth largest buyer, after Japan, South Korea and China. The plan to raise the share of natural gas will require a vast increase in imports and construction of more LNG terminals.

 

Diversifying sources of LNG imports

In 2012, state-run gas marketer Gas Authority of India Ltd (GAIL) signed a 20-year agreement with Russia’s Gazprom for the purchase of 2.5 MMt/a LNG. In June 2018, the first LNG cargo from Russia was delivered to the Dahej terminal in Gujarat.

Supplies have also started from the U.S. In March 2018, Cheniere Energy announced that it had a 20-year LNG supply to GAIL from the Sabine Pass liquefaction facility. The agreement for the supply of 3.5 MMt/a was signed in December 2011. GAIL’s Chairman stated that “GAIL is one of the foundation customers of Cheniere, having signed the contract in 2011. With supplies commencing from the U.S., GAIL will have a diversified portfolio both on price indexation and geographical locations”. LNG contracted by GAIL under the long-term deal with Cheniere Energy is priced at 115% of Henry Hub prices plus a fixed cost of US$ 3 / MMBtu. GAIL has also contracted to buy 2.3 MMt/a over 20 years from Dominion Energy’s Cove Point liquefaction facility.

Over the last three years, GAIL and state pipeline authority Petronet have reworked contracts with suppliers from the Middle East, Russia and Australia, reducing the negotiated price and increasing delivery flexibility.

 

LNG Infrastructure

At present, India has four LNG receiving terminals. All are on the west-coast: Petronet has a 15 MMt/a terminal at Dahej, and a 5 MMt/a terminal at Kochi; Shell has the 5 MMt/a terminal at Hazira; Ratnagiri Gas and Power operates the 5 MMt/a Dabhol terminal.

According to government spokesperson Narendra Taneja, the plan is to build no fewer than eleven new LNG terminals over the next seven years, to increase the import capacity to more than 70 MMt/a.

One of the first of these is expected to be commissioned later this year: Indian Oil Corp Ltd’s (IOCL) Ennore terminal in the south-eastern state of Tamil Nadu. This will be first LNG terminal on the east-coast and will have a capacity of 5 MMT/y.

In July 2017, construction work started on Dhamra LNG terminal on the east-cost in the state of Odisha. Dhamra will be the second LNG terminal on the east coast, and will have an initial capacity of 5 MMt/a which may be doubled to 10 MMt/a. Some 3 MMt/a will be used by IOCL, 1.5 MMt/a by Gas Authority of India Ltd (GAIL) and the remaining capacity will be available to other industrial users. The project, expected to be in operation by 2020-21, is being developed by Adani Group (50%), IOCL (39%) and GAIL (11%). The terminal will be connected to city gas and industrial customers with a 2,540km pipeline, including the metropolis of Kolkata.

The construction of Mundra LNG import terminal on the west-coast is reported to have been completed and the plant is expected to come on-stream by late 2018-2019. The project, which has a capacity of 5 MMt/a, is a JV of the Adani Group and Gujarat State Petroleum Corp Ltd (GSPCL). The pipeline connection to the terminal will send out gas to Gujarat’s main grid, critical for commercial operations.

The state-run Hindustan Petroleum Corp Ltd (HPCL) has formed an equal JV with Shapoorji Pallonji Port Pvt Ltd to build a 5 MMt/a capacity LNG terminal at Chhara Port on the west-coast. In addition, the Jaigarh LNG terminal in Maharashtra is being constructed by Hiranandani Energy, which has signed a contract with a US-based firm that wants to bring its own gas through this terminal.

Operations are also underway at existing facilities to enhance their output. While Shell at Hazira and Petronet at Dahej are planning to double the capacities, the completion of a breakwater project at Dabhol, along with pipeline connection at the Kochi, will see the Dabhol terminals operate at maximum capacity.

 

An aggressive approach to raise domestic production – the deep-water Krishna-Godavari Basin to be the key

With emphasis on importing more LNG from new sources, and investing in developing infrastructure, state-run ONGC and a major private player Reliance Industries Limited (RIL) are investing heavily in the deep-water Krishna-Godavari (KG) Basin.

RIL and JV partner BP announced in June 2017 that contracts will be awarded to progress development of the ‘R-Series’ deep-water gas field on the KG-DWN-98/3 (D6) deep-water block. This is first of three planned projects (Satellite and MJ-1 discovery being the other two projects) that are expected to be developed in an integrated manner, producing from about 3 Tcfg resources (in place or recoverable). Development of the three projects, with total investment of around US$ 6 billion (INR 40,000 crore), is expected to bring a gas production from this acreage to 1 Bcfg/d, ramped up over 2020-2022.

In March 2016, ONGC approved the Field Development Plan (FDP) for Cluster 2 on the KG-DWN-98/2 deep-water block, for a project cost of US$ 5 billion. The project is expected to produce cumulatively around 183 MMbo and 1.5 Tcfg, with peak production of 78,000 bo/d and 529 MMcfg/d. ONGC expects to bring first oil and gas from this project to market by late 2019. Cluster 2A’s peak production is pegged at around 78,000 bo/d plus associated gas (105 MMcfg/d), while Cluster 2B’s peak output is touted at 450 MMcfg/d.

In terms of consumption of the domestic gas, ONGC and RIL have started discussions with potential industrial customers in west India to supply them with gas expected to come on-stream in the next three years from the Offshore KG Basin. RIL is reported to be offering contract durations of three, five, and ten years. The companies are planning to use Reliance’s 1,375km pipeline which was built in 2009, connecting Kakinada in the east of the country to Bharuch in the west. The pipeline has been operating under-capacity in recent years due to a decline in production from RIL’s D1-D3 field in the KG Basin.

The government’s serious attempt and planning of a move towards increasing the use of natural gas in energy consumption is surely a path in the right direction. Backed by not just the financial commitments but also making use of technology from the likes of BP in the KG Basin, can certainly deliver results. However, in the past, execution of such effective plans has seen some delay in the country. But given the already vast middle classes grow in numbers, and consumer demand rises, execution of such plans will be crucial for India’s growth story.

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Pavel Sharma and Andrew Hayman

Pavel Sharma covers oil and gas operations for South Asia. He has also covered operations for the Eastern Mediterranean and the Middle East. Pavel holds an MSc in International Politics (SOAS, University of London) and another MSc in Geographical Information Science (University College London). Andrew Hayman has over 25 years experience in the upstream oil industry. He worked in seismic operations and logistics, marketing and business development for over 10 years, and helped establish West Africa as a major focus of activity. He helped to organize offshore bid rounds for the national oil companies of Cameroon and Gabon and later managed the EMEA cartography and database unit. He also has several years of experience directing Africa data collection and publication efforts. Andrew holds a B Sc in geology and chemistry, an M Sc in geochemistry (University of Leeds) and an M Sc in stratigraphy (University of London, Birkbeck College).

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