Pricing should be driven by market, energy security will automatically come
Dr A K Balyan, Managing Director & CEO, Petronet LNG Ltd

For a country like India, a developing nation with a vast population, to ensure energy availability and accessibility to all at affordable price and guarantee uninterrupted and smooth supplies within the framework of inclusive growth is always a challenge. According to Dr A K Balyan, Managing Director & CEO, Petronet LNG Ltd, “In making the ability to meet the growing energy demand of the country, we need to find out the way how can we achieve it, looking it within the country, looking it outside the country." Edited excerpts from Balyan's presentation delivered during the inauguration of Oil & Gas World Expo 2014…

High economic growth would lead to increase in the energy consumption of the country. So oil & gas sector of a country like India, a developing economy coupled with more than 1.25 billion people, needs to resurgence in a manner that the energy needs can be met.

Coal remains the dominant fuel in the Indian energy mix with a robust 53 percent share in the primary energy consumption, followed by crude oil at 30 percent and gas at 9 per cent. Other sources include 5 percent hydroelectricity, 2 per cent renewable and 1 per cent nuclear energy.

India has now become 3rd largest oil consumer worldwide exceeding Japan. The country's share in oil consumption now stands 4.2 per cent of the total oil produced worldwide. The country must be conscious that this energy is coming at a cost, at a much higher cost and consider the Indian economy's affordability to bear the much higher prices in accessing the energy; therefore it is not only the consumption but also the conservation that is equally important.

India's per capita oil consumption is very low - just about 142 to 143 kg per person compared to China which is more than double of India - about 360 .07 kg, and nowhere near the developed countries like the US & Japan about 2612.33 kg and 1713.1 kg, respectively.

Again per capita gas consumption in India stands very low - about 45 cubic meters per person, which is less than half of China, and far away from the developed economies like the US & Japan. Over the last two and half years, the country has been seeing a remarkable reduction in overall gas consumption due to the decrease of domestic production despite of a growth on the primary energy mix.

India's LNG Import profile is highly dependent on Qatar which contributes nearly 79 per cent of the total. The country must widen its portfolio in quickly diversifying the supply sources in getting LNG from other regions of the world from the energy security point of view.

Role of Natural Gas
Currently, India is the 13th largest gas consumer (55 BCM), and 4th largest gas/LNG importer globally after Japan, Korea and Spain. India would marginally increase the domestic production in the coming year, but dependency on import gas would continue. Resurgence in oil & gas sector, and taking petro products and gas to the consumers becomes very important. So there is one area, which should be epidemic to that resurgence, is the pipeline network infrastructure development.

Over next years, there will be substantial increase in natural gas demand from power, fertiliser and industrial sectors. Currently, power and fertiliser sectors are the two biggest contributors to natural gas demand in India and continue to account for more than 65-70 per cent of gas consumption both domestic and LNG put together. But one sector - City Gas suggests a sustained increase in the level of natural gas consumption in the country in the coming years, where several hundred cities have been identified for supplying gas in the next couple years time. This sector will certainly drive the pipeline industry in the country.

Demand Supply Projections & Gap
India's natural gas demand, which stood at approximately 227 MMSCMD in 2012 -13, is forecasted to see steep increase to around become three folds reaching 713 MMSCMD in 2029-30. On the supply side, it is certain that over the next several years, E & P efforts will result in an increase in the availability of natural gas in the country, but it is not possible to visualise a situation where increase in domestic gas production will be able to completely meet incremental domestic demand going forward. The demand supply gap will increase steadily and is expected to be around 482 MMSCMD in period 2029-30.

The question is that how will the country meet the supply demand gap? The answer would be high dependence on gas imports which can be achieved by two ways - one is transnational pipelines and the other would be establishing LNG linkages.

Though there has been some progress on the front of transnational pipeline projects that have been in a limbo for quite some time, but even these projects are not going to result in dramatic changes to the bridge the demand supply gap. Even with these pipelines in place the landed volumes are going to be of the order of 30-35 MMSCMD while the shortfall would stand at approximately 400 MMSCMD. In such scenario, LNG would perhaps be the best bet to bridge the supply deficit and this is certainly showing signs of resurgence in the oil and gas sector.

LNG Sourcing
Currently, LNG is imported in India through mix of long term and short term linkages and spot basis. India currently has long term contracts between Petronet LNG and RasGas, Qatar for 7.5 MMTPA and Petronet LNG and Mobil Australia Resources Limited for 1.44 MMTPA from Gorgon Project, Australia, GAIL and Chenniere Energy, USA for 3.5 MMTPA and GAIL and Gazprom, Russsia for 2.5 MMTPA.

LNG Regasification Capacity
As on date, India's LNG re-gasification capacity is 23.00 MMTPA (10 MMTPA at Dahej, 5.00 MMPTA at Hazira, 3.00 MMTPA at Dabhol, and 5.00 MMPTA at Kochi). The proposed terminals at Gangavaram, Mundra, Ennore is likely add 15 MMPTA to raise the capacity 45 MMPTA by 2016 and the possible in the west-coast, Kakinada, Pipavav will add total of 12.50 MMPTA by 2020 and thus the country's total capacity is likely to raise to 62.5 MMPTA by 2020 with each or majority of existing LNG terminal in India having the option to expand further. It would be a good solution for the country’s energy demand. The challenge remains how the country can get contracts for affordable, larger quantity of the gas into the country.

Gas Transportation Infrastructure
Pipeline infrastructure is the nervous system of the gas business in India. India, currently, has a network of more than 13,000 km of natural gas transmission pipelines with a design capacity of around 330 MMSCMD, and there is proposal to add equal number km of pipeline in two-three years time , but these requisite is still inadequate, and a larger area would still need more pipeline connectivity. This pipeline network is expected to expand to around 28,000 km with a total design capacity of around 731 MMSCMD in next 5-6 years, putting in place most of the National Gas Grid that would connect all major demand and supply centers in India.

The east, west and south - each region of the country, need adequate pipeline network to take the gas from the terminals to the different markets of the country and that will definitely enhance the development of the gas market in the country.

Way Forward
While the country is emerging as major LNG market of future, the country needs to work towards developing an India specific index from LNG point of view. This would facilitate more business and more resurgence in the gas business, with all round development in LNG terminals, gas storage, and gas pipelines on national and transnational basis to attain desired sustainable growth. Also this would help the country in terms of affordability of the pricing because this would be reflecting the Indian economics’ affordability level.

India would also need to take strategic decisions to attract global players and ensure they participate in infrastructure development. Creation of robust City Gas Network across country is of utmost importance for the smooth supplies of natural gas and to ensure the allocation of gas to every corner of the country.

Last but not the least; the country needs to work towards the mindset of consumers on pricing. Pricing should be driven by market forces and ultimately it will lead to energy security of the country. A comprehensive approach, which can meet suppliers' expectation on one side and meet consumers' price expectation on other side, needs to be firmed up.