Global LNG Trade Dynamics and Economic viability of R-LNG in Gas Market of India

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Indian Natural Gas Market, Global LNG Trade
Dynamics and Economic viability of R-LNG in India
Executive Summary The share of LNG in total natur
al gas consumption in India reached 25.5 in FY12
and increased to 30 in FY13. The fall in
domestic gas production in recent years has
forced many gas consumers to evaluate the
viability of using R-LNG to bridge the gap. The
governments decision to increase the price of
domestic natural gas from April 2014 has further
complicated things for natural gas consumers.
Domestic gas prices are expected to double to
around 8.5/MMBTU from 4.2/MMBTU currently. The
domestic gas production is not expected to
increase substantially over the next 3-4 years.
Keeping in view the scarcity of domestic gas,
Indian Petro Group has assessed the
competitiveness of imported LNG with various
liquid fuels based on the energy content and
price. Based on the price of alternative fuels,
the viability of using
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Indian Natural Gas Market, Global LNG Trade
Dynamics and Economic viability of R-LNG in India
imported natural gas for various industries has
been analyzed. Gas based power stations around th
e country are operating at low PLFs due to
unavailability of gas and are in danger of
defaulting on their debts. Gas based power plants
will find it extremely difficult to compete with
coal power plants in the future. The recent
debacle in the power sector will reduce the pace
of investment in gas power plants. With coal
prices in the range of 2-3/MMBTU, domestic gas
priced at 8.5/MMBTU and imported gas price of
16-20/MMBTU, the cost of generation from gas
power plants will be significantly higher than
that of coal power plants. The fertilizer sector
will also have to adapt to the new pricing
paradigm. Naphtha prices are currently trading
around 26-27/MMBTU in India but the subsidies
doled out by the government makes it a viable
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Indian Natural Gas Market, Global LNG Trade
Dynamics and Economic viability of R-LNG in India
option when compared to Natural gas. Natural gas
becomes uneconomical for the fertilizer sector at
import prices of about 19-20/MMBTU. Under these
circumstances, fertilizer producers may find it
cheaper to set up plants in the US and Canada to
take advantage of the low gas prices prevailing
in North America and then import the finished
products into India. Sectors such as Steel, Refin
eries and CGD had to increase dependence on
imported LNG in FY 2013 as they are assigned a
lower priority in gas allocation as per the
governments gas utilization policy. The CGD
sector used imported LNG to fulfill more than
half of its gas requirements in FY12 and FY13.
The share of imported LNG in the refineries and
steel sectors was around 65-75 in FY12 and
increased to around 75- 12 Indentification of
High Value Crops 80 in FY13. At high LNG prices
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Indian Natural Gas Market, Global LNG Trade
Dynamics and Economic viability of R-LNG in India
of around 20/MMBTU, refineries may find it more
economical to replace natural gas with Furnace
Oil to reduce costs. Globally, LNG trade has been
increasing at a fast pace. The number of
countries importing LNG has been on the rise over
the last decade. USA and Australia are expected
to become major exporters in the near future and
offer the best bet for sourcing long-term gas
post-2015. The price of LNG in Asia has been very
high compared to the prices prevailing at global
trading hubs in North America and Europe. The
Natural gas market is still largely fragmented
into regional markets. India and China are
expected to become large importers in the future
and will strive for a larger share in the global
LNG market. The price of LNG in Asia will
continue to be highly volatile in the future as
observed in the last two years. Gas consumers
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Indian Natural Gas Market, Global LNG Trade
Dynamics and Economic viability of R-LNG in India
in India need to evaluate all available options
to adopt strategies to remain profitable, given
the low availability of domestic gas and high
prices of imported LNG. Introduction Natural gas
has emerged as the fuel of choice for many
industries around the world as it is a cheap,
clean and efficient source of energy. Natural gas
use may be broadly classified into two
categories, namely, for energy generation
purposes and non-energy purposes. Natural gas is
used for energy generation purposes in power
plants, industries, refineries, as domestic fuel,
captive usage, LPG shrinkage, City Gas
Distribution (CGD), tea plantations etc. In the
non-energy purposes category natural gas is used
as a feedstock or raw material in the fertilizer,
petrochemical, sponge iron industries etc.
The share of Natural Gas in total primary energy
production has
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Indian Natural Gas Market, Global LNG Trade
Dynamics and Economic viability of R-LNG in India
been increasing around the world over the last
decade. This can be attributed to the
comparatively low price of natural gas resulting
from substantial gas discoveries and exploitation
of unconventional gas resources enabled by
technological advances. In the USA and Canada,
Natural gas accounts for 23-25 of total energy
production and its share is on the rise. The
share of natural gas in energy production in
Europe has increased from 9 in 1990 to over 24
in 2012. The share of natural gas in global
primary energy production was about 22 in 2012.
In India, the share of natural gas in energy
production is low by global standards at just 9.
The share of natural gas in energy production is
expected to continue to grow in the future.
Global production of Natural gas reached 3363.9
billion cubic meters (BCM) in 2012 from 2523.9
BCM in 2011.
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Indian Natural Gas Market, Global LNG Trade
Dynamics and Economic viability of R-LNG in India
Global production grew at a slow but steady rate
of 2.9 per annum over the last decade.
The quantity of natural gas traded between
countries increased at a healthy rate of 5.9 per
annum over the last decade to reach 1033.4 BCM in
2012 from 581.34 BCM in 2011. Since 2010, more
than 30 of global natural gas production has
been utilized for trading/exports. In 2002, only
23 of aggregate global production of natural gas
was traded/exported. The share of global
production utilized for trading has increased
consistently over the last ten years, dipping
slightly in 2012 compared to 2011.
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