India's future lies in liquified natural gas

India’s trillion-dollar economy is already one of world’s largest importers of LNG. “The rapid increase in LNG demand from Japan will limit the ability of emerging markets such as India to source LNG,” Bank of America Merrill Lynch Head Fransisco Blanch said. The extra supplies that India needs are more likely to come from Qatar and Australia, experts said. Qatar already supplies India on long-term contracts.

While buyers often complain of the link with expensive oil in long-term Asian contracts for liquefied natural gas, India will have no choice but to sign up quickly if it wants to avoid being beaten to the supply by Japan and China. Competition for supply is likely to be intense. Japanese companies have had to increase imports to fuel gas generators after shutting down nuclear power generation capacity after the earthquake and tsunami.  China’s imports are expected to rise about fivefold, to 46 million tonnes it imported in 2020 from about 9 million tonnes in 2010.

Indian buyers have already had to outbid Japan for spot, or immediate delivery, shipments of LNG from Qatar. 

With costs rising for already pricey Australian LNG projects, holding off on securing of long-term supply deals could end up costing Indian buyers. “For many years, Indian companies have held back from signing long-term contracts, hoping to get a better price for LNG” PFC Energy’s energy analyst Natalie Bravo said. “But in retrospect, this strategy is going to prove costly.”

Signing long-term deals now would ensure more profitable operations for importers of LNG, who are planning to build expensive import facilities, said Amitava Sengupta, former head of Petronet, largest importer of LNG in the country.

“Indian companies should definitely go for midterm, 10 to 15 year LNG contracts,” he said. By 2020, with galloping economic growth of about 8 per cent increasingly attractive against coal and oil, which produce heavier carbon emissions, India could need twice as much natural gas as it consumes now. The gulf between domestic demand and supply is widening. Hopes, for a hefty contribution to meet demand earlier this year when Reliance Industries acknowledged that production was slipping at its D6 field.

Lacklustre domestic exploration results give little reason to expect a turnaround at home. Geopolitical hurdles to pipeline supplies through fractious neighbours like Iran, Pakistan and Afghanistan have made LNG only serious source of supplies. To cope with rising imports, India plans to spend billions to increase the capacity of import terminals for LNG to 26 million tonnes per year from from 13.7 million. Existing terminals are operated by Petronet and Royal Dutch Shell.

India’s pipeline network would need an overhaul and expansion to get the gas to market, work that would require an investment of as much as Rs 350 billion, GAIL Chairman B C Tripathi.