According to EY, India’s expanding economy and growing population have led to increased consumption of primary energy resources such as coal, oil and natural gas in the country.
In line with this, its primary energy consumption grew at a compounded annual growth rate (CAGR) of 6% to 563.5 million t of oil equivalent (toe) in 2012 from 420.1 million toe in 2007.
The share of natural gas in its primary energy mix increased marginally from 8% in 2008 to 8.7% in 2012. This is fairly low, compared to the global average of 24%, primarily due to supply side constraints. Furthermore, in terms on individual consumption, India’s natural gas consumption of 44 m3 per capita is far behind the global average of 470 m3 per person.
Significant gas deficit
Despite low gas consumption relative to global trends, India’s natural gas market is nevertheless seeing a supply deficit, primarily due to low domestic production and an inadequate transmission and distribution infrastructure. According to EY, domestic gas production received a significant impetus with commencement of production at the KG-D6 field, located in the country’s east coast in 2009, however the field’s output has steadily declined and has hit a trough of 12 million m3/d in the third quarter of 2014.
According to Reliance Industries Limited (RIL), the fall in KG-D6’s production is mainly due to geological complexity and a natural decline in the fields. The decline in most of the country’s ageing fields has further compounded the supply deficit.
On the other hand, the demand for natural gas in India has increased significantly due to the demand from the power and fertilizer sectors, and cumulatively accounted for more than 61% of gas consumption in 2013. The demand is also driven by its growing usage in the city gas distribution (CGD) sector and industrial sectors, such as refining and petrochemicals. Rising concerns in regards to carbon emissions have also contributed to the demand for natural gas in the country.
This has led to increased Indian dependence on imported LNG. The country’s LNG imports have increased from approximately 8 million t in fiscal year 2009 (FY09) to 11 million t in FY13, accounting for 28% of total supply. India is currently the world’s fourth largest importer of LNG in the world, according to the BP Statistical Review of World Energy 2013.
Rising production and imports
EY expects that the shortfall in natural gas in the country will continue over the next few years, with supply trailing demand. Shortage of gas is likely to reach its peak in FY15, with approximately 37% of the demand being unmet. However, from FY16 onwards, the deficit may decrease, primarily due to the planned production of private and joint venture companies and increased LNG import capacity. Power and fertilizers are expected to remain the anchor segments that consume natural gas and are likely to account for approximately 68% of the total demand for it in FY17. Furthermore, deregulated pricing of petroleum products and an increasing focus on addressing environmental concerns are expected to drive the demand for natural gas from industrial users, residential users through piped natural gas (PNG), and in the transportation segment through the demand for compressed natural gas (CNG). However, this demand is highly price sensitive and will depend on the price affordability of end users, especially in the power and fertilizer sectors.
EY expects the total supply of natural gas to reach 359 million m3/d in FY17, a CAGR of 15% from FY14 in india. Most of this incremental supply will fail to keep pace with the anticipated rise in demand. The country’s potential to import LNG is expected to increase to 150 million m3/d in FY17, contributing approximately 42% of the total supply.
EY additionally expects domestic production to increase at a CAGR of approximately 12%. This is likely to come from new discoveries which are currently under development, expectation of partial recovery in the output from KG-D6 and increased production from unconventional sources, particularly coal bed methane.
Adapted from a report by Emma McAleavey.
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