High prices pose challenge to Indian gas ambitions

India embraced LNG as a means of supporting its economy with clean and affordable energy, complementing domestic production and helping to reduce consumption – the country’s main source of power generation. But owing to presently high global LNG prices, India’s progress on expanding gas use to 15% by the end of the decade, from 6-7% at present, is stalling.

India’s LNG imports in 2022 came to 20.8 MT (28.3 bcm of natural gas), down 14% year on year. This is the second year in a row that volumes have dropped – in 2021 they declined by 6%, as climbing prices towards the end of that year began to have an effect.

Meanwhile, domestic gas production grew by only 3% in 2022 to 33.4 bcm, failing to compensate for the drop in LNG shipments, with the country’s overall gas supply dropping 4% last year.

The critical role of gas

High global LNG prices pose a clear challenge to India’s plan of expanding the role of gas in power generation, industry and other sectors, given limited options for pipeline gas imports and slowing growth in domestic output. But its gas targets must be met, if India is to cut coal use and reduce its emissions.

India boasts considerable renewables potential, and the rate at which it is deploying new capacity has been impressive. It now has the fourth largest wind power capacity in the world and the third largest solar PV capacity. But renewables, excluding large-scale hydroelectric capacity, still supply only 5% of the country’s primary energy. And given the intermittent nature of this supply, another source of baseload power capacity is needed to replace coal, and natural gas is the only lower-emission fuel that can play this role in the medium term.

India has been pushing to expand the share of gas in its energy mix for many years, and its slow progress in this area predates the current energy crisis. In fact, the share of gas in the country’s primary energy mix has hardly changed in 15 years. However, high LNG prices now mean that India now finds itself backtracking. The share of gas in its energy mix shrank from 6.8% in 2021 to 6.3% in 2022, and it is likely that a further contraction took place last year.

At the same time coal consumption has continued to grow – by 14% in 2021 and 7% in 2022, according to the International Energy Agency (IEA). The IEA predicts that coal demand will see further growth from just over 1,000

MT in 2022 to 1,220 MT in 2025. New Delhi’s draft national electricity plan anticipates that an additional 26 GW of coal-fired capacity will be developed by 2026-27.

Infrastructure delays

India’s largest LNG importer, Petronet, forecasts that LNG will increasingly dominate the country’s gas market, predicting it will meet 70% of demand by 2030, up from under 50% in 2022. Even though India’s existing LNG import terminals are running at only around half capacity in 2022, substantial new capacity will be needed if India is to meet its gas targets. However, new terminal projects have faced delays. The 6-MTPA Jaigarh LNG terminal was meant to come online last year, but commissioning was postponed because of COVID-19 disruptions and labour shortages. In August last year, a charter deal for the Hoegh Giant floating storage and regasification unit (FSRU), earmarked for the project, was terminated, and the vessel is due to be deployed elsewhere instead.

Progress at the 5-MTPA Jafrabad LNG project –originally meant for launch in 2019 – has also stalled, because of repeated cyclone damage and pandemicrelated issues. And the Vasant I FSRU which was set to service the terminal is now similarly expected to be used elsewhere.

Meanwhile, the 5-MTPA onshore Dhamra LNG project missed its target for launch in the second half of 2021. Its operator Total Adani told Reuters in February 2023 that it expected to receive 2.2 MTPA of

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India’sLNGContractVolumes

The

Madre de Dios basin

is a foreland basin with a prospective area of 43,000 m2 and some 5,000m of sedimentary infill. The basin includes the complex fold thrust belt with outcrops of Paleozoic, Cretaceous and Tertiary age on the south and SW bordered by a foreland basin covered by Quaternary alluvial deposits.

Hydrocarbon exploration in the Madre de Dios basin has been progressively carried out by different companies, which demonstrates the existence of gas potential that has been proven with the discovery of the Candamo Field, which has certified 2C contingent resources of 422.5 BCF and 5.2 MMSTB of NGL (MINEM, 2019). The estimated volume for prospective resources is of 20,401 BCF.

Sabine

Prospect “Salvación”

Reservoirs: Vivian, Lower Chonta and Nia

Avr. Depth: 5,000 m

Fluid type: Gas and Condensate supply at the facility in the year ending March 2024, but acknowledged that supply arrangements had not been finalised.

A global problem

The good news is that LNG spot prices have now fallen back to the level that they were prior to the conflict starting in Ukraine, and this could spur a recovery in India’s LNG imports. But at $15-20 per mmBtu, these prices are still several times higher than was typical prior to the COVID-19 pandemic. With limited new global supply expected online before the middle of the decade, the market will remain tight in the medium term, further undermining New Delhi’s gas ambitions.

In the longer term, only expanded investment globally can ensure India’s plans get back on track. What Indian companies can do to support this is seek new long-term supply contracts that can help stimulate investment in extra production. Reports suggest that some are doing just that. In February, local media reported that India’s Indian Oil Corporation Ltd (IOCL) and GAIL are in talks with the UAE’s Abu Dhabi National Oil Company (ADNOC) were at an advanced stage of talks on securing a longterm supply contract with Abu Dhabi-based ADNOC. Indian companies could go a step further and invest in liquefaction projects themselves, supporting their development and securing offtake volumes in the process. Also in February, GAIL was reported by Reuters to be looking to purchase an equity stake in an existing LNG plant or project in the US.

Present market conditions make it difficult, but India will have to continue pursuing a greater role for gas in its economy, if it is to make meaningful progress in curbing its emissions.

AVAILABLE DATA

Basin Area: 7.5 MM Ha.

Source Rocks: Copacabana (Permian), Ambo (Carbonif.), and Cabanillas (Devonian)

Reservoir Rocks: Vivian, Lower Chonta (Cretaceous) and Nia (Permian)

Fluid Type/ °API: Gas and 55 °API Condensate (Candamo-1X) and 50.8°API (Pariamanu-1X)

Wells: 7 Exploratory Wells (Wildcats)

Leads “Mazuko” (MT - 2021)

Reservoirs: Vivian, Lower Chonta and Nia

Avr. Depth: 4,200 m

Fluid type: Gas and Condensate

Acquired 2D Seismic: 8,272 Km (1973-2010)

2D Seismic Reprocessed: 1,800 Km (PSTM), 780 Km (PSDM)

2D Seismic Enhanced by Searcher: 7,923.7 Km

Magnetotelluric: 2 lines with 78 stations (2021)

PROSPECTIVE RESOURCES