India's gas growth hinges on reforms
Expanding liquefied natural gas (LNG) import capacity alone will not be enough to drive India's long-term natural gas growth, with the country needing faster investment
Expanding liquefied natural gas (LNG) import capacity alone will not be enough to drive India's long-term natural gas growth, with the country needing faster investment in pipeline infrastructure, gas distribution networks, gas-intensive industries and sweeping reforms to pricing and market design, according to a report by the International Gas Union (IGU).While India has significantly increased its LNG regasification capacity in recent years, investment in transmission and distribution infrastructure has failed to keep pace, limiting the country's ability to expand gas consumption, the report said.Also Read: LNG consumption declines 6.5% on costly import, lower outputIt added that reforms to pricing mechanisms, market access and regulations will be critical if India is to sustain long-term growth in gas demand.The report comes against the backdrop of heightened concerns over India's energy security following disruptions to shipping through the Strait of Hormuz during the recent Iran conflict."The Strait of Hormuz crisis has underlined several import dependencies for India, particularly in gas supply chains. India's heavy reliance on Gulf-sourced LPGs and LNG, where Qatari exports are the primary source of supply, will bring into question India's historic reliance on close geographical suppliers that have proven to be vulnerable to disruption."These issues are not insignificant, and the current price shock will also, in the short term, upend the economics of imported gas for Indian power producers, industrial and domestic customers, for as long as it lasts."India currently meets only about 50-52% of its natural gas demand through domestic production, with the remainder supplied through LNG imports, primarily from Qatar, Australia, the US and Russia.Also Read: Govt plans LNG buffer mandate for terminalsIts dependence is even greater in liquefied petroleum gas (LPG), with imports accounting for around 60-65% of domestic consumption despite India being among the world's largest LPG users.A significant portion of these imports passes through the Strait of Hormuz, exposing the country to geopolitical disruptions.However, the IGU believes the medium- to long-term outlook could improve if tensions in the Gulf subside.A surge in new LNG export capacity expected over the remainder of the decade is likely to keep global LNG markets well supplied, putting downward pressure on prices and improving the economics of gas consumption in India.
Permanent demand destruction in other Asian markets following the recent price spike could further accelerate declines in benchmark LNG prices, making gas more competitive.To take advantage of potentially cheaper LNG, India will need to make its domestic gas market more flexible, the report said. It recommended further liberalisation of LNG terminal capacity bookings and system entry charges to improve market access and raise utilisation rates at import terminals.The report also argued that gas will continue to struggle against coal unless pipeline connectivity expands substantially across the country."If gas is going to compete more effectively with coal, new transmission lines - underpinned by competitive transport tariffs - will be needed to provide reliable supply to the north, east and centre of the country where the gas network exists but is sparse."It noted that inadequate pipeline utilisation in coal-dependent regions has kept delivered gas prices elevated, discouraging industrial consumers from switching fuels."Progress will require reforms to market design, regulation and pricing, as well as further liberalisation of terminal capacity bookings and system entry charges."According to the report, lower international gas prices alone will not be enough to lift domestic consumption.
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