India’s ‘blue flame revolution’ gathers pace
During the first term of Narendra Modi’s National Democratic Alliance (NDA) government, the prime minister and his petroleum and natural gas minister, Dharmendra Pradhan, spoke often of wanting to build a gas-based economy in India. Pradhan says he wants to see a “blue flame revolution transform India’s energy landscape”. With the government now in its second term—following the NDA’s landslide victory in last May’s general election—gas remains a policy priority. The aim is to boost the share of natural gas in primary energy supply from 6.2pc to 15pc by 2030. Given that primary energy supply is forecast to grow by 4.2pc/year, according to Pradhan, the scale of this ambition is breathtaking. If Pradhan’s forecast proves correct, primary energy supply by 2030 will be 50pc greater than today. So, to meet the 15pc target, gas supply would need to grow almost fourfold. To even get close to meeting this target, domestic production and gas imports would need to grow at unprecedented rates. With pipeline imports still a distant prospect and domestic production growth uncertain, LNG imports—which already account for 52pc of the nation’s gas supply—would need to rise steeply. Encouragingly, over the past five years they have been growing at 12pc/yr (see figure 1). Challenges and ramifications India faces “challenges of a magnitude and character unseen in any IEA member country”, according to a review of India’s energy policy published this month by the International Energy Agency (IEA). “The way these challenges are met will have major ramifications for other sectors, such as water, food, urban planning and transport.” Narendra Modi is no stranger to controversy—perhaps never more so than today as widespread protests persist over recent changes to citizenship laws. But there were good reasons for the landslide victory of his Bharatiya Janata Party (BJP), which makes up the rump of the NDA, in last year’s elections. Among these were notable policy successes, especially in energy. Since Modi came to power in 2014, his administration has brought electricity to hundreds of millions of people who previously lacked it. It is claimed that household electrification, while it can be intermittent, is now 99.9pc. A target of full electrification, without interruption, by 2022 now looks doable. LPG coverage is up to 90pc, bringing significant health benefits as traditional biomass cooking fuels are displaced and freeing (mainly) women from the drudgery of collecting firewood. City gas distribution (CGD) is growing rapidly, though from a small base; today only 5mn households are connected to the gas grid, compared with the 80mn using LPG. Chronic energy shortages that were constraining the nation’s economic growth have been ameliorated. According to the Ministry of Power, the nation’s energy deficit in fiscal year 2018 (ending in March 2018) was just 0.7pc, down from 4.2pc in the year to March 2014. This matters enormously because “India has set a target growth rate of 9pc/year, which would place it on a trajectory towards becoming a $5tn economy by 2024/25, making it the fastest-growing large economy in the world”, according to the IEA. Renewables by 2022 A hugely ambitious renewables investment programme is on target to reach 175GW of installed capacity by 2022. “Installed solar generating capacity is targeted to reach 100GW by 2022,” says minister Pradhan. “We are well on our way to achieving this target. India has more than doubled the renewable power installed in the country to 82GW in 2019 during the last five years.” Energy efficiency has been boosted through initiatives such as the widespread replacement of incandescent light bulbs with LEDs. “India’s achievements in the energy sector have been outstanding. The scale of these achievements is hard to overstate,” Birol, IEA And, the prospects for upstream oil and gas production growth have been rejuvenated with major reforms, such as 2016’s Hydrocarbon Exploration and Licensing Policy (Help). These reforms have created a new licence for exploration and production of all forms of hydrocarbons, under an open-acreage licensing model, with a revenue-sharing rather than a cost-sharing recovery mechanism, and marketing and pricing freedom for the oil and gas produced. “India’s achievements in the energy sector have been outstanding. The scale of these achievements is hard to overstate,” says the IEA’s executive director, Fatih Birol. But big challenges lie ahead. Climate pledge pressure Primary energy demand is forecast to double by 2040, as the economy continues to grow apace. To contain the nation’s heavy dependence on coal—which accounts for more than half of primary energy supply—and to enable it to meet the climate pledges it has made under the 2015 Paris Agreement, India is again ramping up its renewable energy ambitions. Modi announced at the United Nation’s Climate Summit, held in New York last September, that the electricity mix would eventually include 450GW of renewable capacity. For that to be possible India will need a lot more natural gas in the electricity sector to manage renewables’ intermittency and to provide synchronous generation for grid stability. India is also working hard to extend the reach of city gas to as many people as possible to improve the appalling air quality in many of its cities. The government has now held ten CGD bidding rounds, which together cover 53pc of India’s geographical area and 70pc of its population. 12pc/yr Growth rate of LNG over the last five year To provide the necessary transportation pipeline infrastructure, a huge investment programme is underway that will add another 15,000km of pipeline to the existing 16,800km long-distance network. The highest-profile such project is the Jagdishpur-Haldia & Bokaro-Dhamra Pipeline (JHDGPL) project, which is being executed by Gail at a cost of INR12,9400mn ($1.81bn), 40pc of which is being funded by a government grant. It will bring gas to five states in the east and north-east of the country: Uttar Pradesh, Bihar, Jharkhand, Odisha and West Bengal. Moreover, India is unusual in that its largest gas-consuming sector is fertiliser production; that too will continue to grow as India struggles to feed its huge population of 1.3bn and rising. For gas to meet 15pc of primary energy
Oil-linked LNG deals add to India’s discomfort as gas prices plunge
Potential deal re-negotiation with Qatar a win-win for all: Platts Analytics Qatar may ask for bigger volume commitment for any price flexibility Platts JKM at 10-year low, has dipped below the $4/MMBtu mark. Singapore — India is stepping up pressure on Qatar to re-negotiate term LNG deals and move away from oil-linked contracts as gas prices hit multi-year lows, but any flexibility in the future may come at the cost of a larger volume commitment, analysts told S&P Global Platts. Like the rest of Asia, the bulk of India’s LNG term import deals are oil-linked, but falling spot LNG prices amid bulging global supply have resulted in a pushback from Asian buyers, who are seeking to either re-negotiate those deals or diversify procurement to spot markets. “As India follows other Asian economies to consider contract re-negotiations, India’s proximity to Qatar and the potential to grow volumes could make a re-negotiated deal a win-win situation for both countries,” said Chinmayee Atre, LNG analyst at Platts Analytics. “But it’s unlikely Qatar will accept lower prices unless it’s compensated for by higher volumes.” Qatar’s energy minister Saad al-Kaabi held talks recently with India’s petroleum and steel minister Dharmendra Pradhan amid hopes that India and Qatar might look into re-negotiating annual LNG contracts. “Al-Kaabi and I explored ways to make LNG more affordable for a price sensitive market like India, especially in our long-term contact,” Pradhan said in a tweet after his meeting with Kaabi. But there has been no commitment from Qatar on whether they would look into renegotiating deals, although some analysts said that they won’t completely rule out pricing flexibility in the future. “The price is always negotiated business to business. We don’t disclose commercial terms. We don’t negotiate long-term contracts,” Kaabi told reporters in New Delhi. Mounting pressure However, some analysts said India may have an upper hand in the future as it won a price concession from Qatar in 2015 in exchange for a higher volume commitment. “This is clearly a good time for LNG buyers to request a re-negotiation in their oil-indexed long-term contracts and buyers globally will continue to make these requests,” said James Waddell, senior global gas analyst at Energy Aspects. “Spot cargoes are abundant and around half the price of gas under typical oil-indexed contracts. We see this situation continuing at least through 2021.” The benchmark for spot Asian LNG prices, JKM, has plunged to a more than 10-year low, falling below $4/MMBtu for the first time since July 2009 due to a wave of new supply from Australia and the US amid slowing demand. Meanwhile, the DES West India assessment sunk to an all-time low of $3.725/MMBtu in January 2019, the lowest since Platts started the assessment in January 2010. The drop in spot prices has spurred LNG buyers to issue a flurry of tenders since the beginning of the year. The added pressure on India to renegotiate term contracts emerges from the growing disparity in term prices against spot prices. The average spread between term Dated Brent prices with an estimated slope of 13.5% against spot LNG prices in 2019 was $2.69/MMBtu compared to minus 29 cents/MMBtu in 2018. This would mean that a buyer purchasing a standard 3.4 TBtu cargo linked to Brent prices would be paying $9.15 million more for a cargo compared to purchasing against spot LNG prices in 2019. In 2018, a buyer would save about $0.99 million purchasing on Brent-linked contracts against procuring spot LNG cargoes. The term prices are based on a lagged “3-0-1” pricing formula, which takes the average of the three months prior to the month of delivery. The average spot Brent slope — obtained by dividing the Brent crude oil price by the spot LNG price — dropped to 8.70% in 2019 from 13.70% in 2018, Platts data showed. Limited bandwidth Waddell said it’s tough for two types of firms to take oil-indexed LNG supply with a slope between 10% and 14% of Brent — those with a relatively smaller gas portfolio to absorb those volumes, and secondly those who face competition from firms who are able to source cheaper spot cargoes. “These customers of oil-indexed LNG are then forced to sell their surplus cargoes on the spot market or pay penalties for not lifting them, both creating heavy financial losses.” he added. Pradhan has repeatedly said that India is open to a review of LNG prices under its long-term contracts, reflecting market concerns about high prices. “This is a test of India’s buying power in the international market,” said Anupama Sen, Senior Research Fellow at the Oxford Institute for Energy Studies. “The Indian government indicated that it was investing on expanding gas transmission and distribution infrastructure in the country in an attempt to scale up the market for gas. As gas cannot currently compete with cheaper substitutes in the domestic market in many uses, the price will be an important factor in determining how quickly this happens,” she added. India currently has long-term LNG supply contracts with Qatar for about 8 million mt/year.
India working on new strategy to meet the target of 10 per cent cut in oil imports by 2022: Oil minister Pradhan
With the government’s aim of reducing India’s oil import dependence by 10 per cent by 2022 not picking up pace, oil minister Dharmendra Pradhan today said his ministry is developing a new strategy to achieve the target. “Crude oil will continue to play a critical role at this stage of our development in meeting our energy requirements. Our government had set a road-map on reducing India’s crude oil import dependence by 10 per cent by 2022. We are developing a new strategy and initiatives to achieve this target,” he said, speaking at the World Sustainable Development Summit 2020 organised by TERI here. India’s oil import dependence has steadily increased to 85 per cent during the April-December period of 2019-2020 as compared to 78.3 per cent in financial year 2014-2015, according to data sourced from the ministry. The increase in oil import dependence is mainly attributed to the decline in domestic oil production, which fell to 34.2 Million Tonne (MT) in 2018-2019 from 37.5 MT in 2014-2015. In the April-December period of the current financial year (2019-20), the country’s domestic crude oil production declined 6 per cent to 24.4 MT. Pradhan had in December last year said the oil ministry expects natural gas production to increase significantly from the current levels. However, domestic oil production is expected to plateau. In a bid to curb the country’s rising dependence on imported crude, the oil ministry has been trying to push for higher adoption of natural gas and alternative fuels to displace the demand of crude oil. “Our energy consumption is projected to grow 4.2 per cent per annum till 2035. India’s share of total global primary energy demand is said to double by 11 per cent by 2040 driven by strong economic development,” Pradhan said. Speaking on India’s renewable energy sector, Pradhan said it is expected to create around 3.30 lakh jobs by 2022 and more than 24 million jobs by 2030.