Overview

India is one of the fastest-growing gas demand hubs in the world, but its ability to meet that demand is still uncertain. The country has four operational LNG terminals on the west coast, with two more coming online in 2013 and 2014. Dabhol was commissioned in January 2013, although it only received half a dozen cargoes in its first year. Kochi followed a year later, but it will not reach full import capacity until a pipeline expansion is completed.

Plans for at least five more regasification projects have been put forward, four of which are on the east coast. But while there is significant room for LNG supplies to increase, the government and state-run upstream companies are resisting becoming too heavily reliant on such high-priced imports. Instead, they are focusing on encouraging exploration and production at home – although that area is also complicated by pricing issues.

At the heart of the problem is India’s domestic gas price, which is fixed at $4.2/MMBtu. The previous government planned to introduce a market-based formula in June 2013, which would have raised the price to $8.4/MMBtu from 1 April 2014 and been revised each quarter. However,the introduction of the new price was postponed until after the general elections, and then delayed again after the new government took office and said it needed to review the measure. The formula would link the domestic price to the Henry Hub, NBP, Japanese Crude Cocktail and landed LNG prices in India, and has generally been welcomed by producers as a step in the right direction.

Meanwhile, India’s western offshore fields are ageing and the Krishna Godavari D6 Block on the east coast has failed to live up to expectations – although Reliance Industries and BP are working to reverse the decline in production within the next few years.

As a result, the country’s gas shortfall is growing. India recorded the largest volumetric decline in gas consumption in the world in 2013 – down by 12.2% year on year, compared with a global increase of 1.4%, according to BP’s Statistical Review of World Energy. Gas production declined in 2013 for a third year in a row, by 16.3%, to 33.7 bcm; LNG imports fell from 20.5 bcm to 17.8 bcm.

Page updated: 28/07/2014