India has mostly been a non-factor to date in the correction of LNG markets in 2017 because of a lack of domestic natural gas infrastructure, but that should change in 2019 and 2020. Yesterday, we saw two good reminders on how India is just now starting to build out the domestic natural gas infrastructure to support India Prime Minister Modi’s target to get natural gas to 15% of its energy mix in 2030. Modi’s made a major speech highlighting the build out of its compressed natural gas (CNG) distribution centres for vehicles and local natural gas distribution pipelines. Bloomberg estimated that LNG regasification capacity additions of ~4.9 bf/d in 2019/2020, which is 1.3x current India LNG regasification capacity. If Modi is to hit the natural gas target to reach 15% of energy mix in 2030, this would add ~1.3 bcf/d of natural gas consumption per year. India may not be a China in terms of its LNG impact, but ~1.3 bcf/d of increased demand per year is equivalent to approx 2 Cheniere LNG phases, or ~75% of LNG Canada’s Phase 1 of 1.7 bcf/d. Its one more reason why the outlook for LNG demand looks good in the early 2020s.
India has been a non-factor in the world’s increasing natural gas consumption. India’s natural gas consumption peaked in 2011 at 5.9 bcf/d and then declined to 4.5 bcf/d in 2015. In that same period, world gas consumption increased 22.5 bcf/d from 313.6 bcf/d to 336.1 bcf/d. China was not in its big growth phase, but still increased its natural gas consumption by 7.7 bcf/d from 13.1 bcf/d in 2011 to 18.8 bcf/d in 2015. India has not had the domestic gas distribution or import regasification facilities to support any real growth.
Its just now ramping up its local natural gas distribution infrastructure. Yesterday, India Prime Minister Modi made a major speech [LINK] (we did a google translate version) at the ceremonial foundation stone laying of “City Gas Distribution” (CGD) projects in New Delhi. The CGD is the local distribution network to deliver compressed natural gas (CNG) for vehicles and local pipeline natural gas for home cooking. Modi noted that there were only 66 districts in Inia that were covered by CGD, was now at nearly 174 districts, but would reach 400 districts in the next 2 to 3 years. And growth will continue to accelerate to 2030. With regard to the CNG stations for vehicles, Modi said there were 947 CNG stations in 2014, is now up to >1,470 CNG stations, and by 2030 should be ten thousand CNG stations.
City Gas Distribution has been supplied by domestic natural gas production, which has been in decline. The key reason for the push on adding regasification is that, to date, the CGD has been primarily supplied by India’s domestic natural gas production. Yet, despite its natural gas supply potential, BP Amoco data shows India’s natural gas production has been in decline since it peaked in 2010 at 4.6 bcf/d and has been stuck in the 2.6 to 2.9 bcf/d range since 2014.
And the build out of natural gas infrastructure is now about to take off – LNG regasification capacity 2019/2020 adds are 1.3 times current capacity. Yesterday, Bloomberg had a good India Natural Gas Primer Nov 23, 2018 update on the Bloomberg terminal. The update included the below table that shows existing operating regasification facilities plus upcoming announced terminals. Current regasification capacity is ~3.8 bcf/d, whereas the upcoming regasification terminal capacity additions in 2019 and 2020 cap are expected to add ~4.9 bcf/d in new capacity, which is ~1.3 times current regasification capacity.
India Current/Planned LNG Regasification Projects
Source: Bloomberg
There could be ~1.34 bcf/d relief in 2021 if the TAPI gas pipeline gets built to its final leg to India. There continues to be hope for the long delayed and uncertain TAPI (Turkmenistan-Afghanistan-Pakistan-India) natural gas pipeline that is planned to have 3.17 bcf/d capacity. The capacity allocation is Afghanistan 0.49 bcf/d, Pakistan 1.34 bcf/d and India 1.34 bcf/d. It has been long delayed, but news reports out of Azerbaijan [LINK] on comments by TAPI Pipeline Company President Amanov “We plan to conclude the final investment decision in the first half of the next year, and then gradually complete the construction in Afghanistan, Pakistan and India,” such that natural gas should reach Pakistan and India in 2020 or 2021. The biggest risk to the pipeline (construction and ongoing operation) has been the wildcard of the Taliban in Afghanistan.
Pollution has become a major factor in India and a key reason for the push to natural gas. Just go to your Bloomberg terminal or google “India pollution” and there is no shortage of stories, especially as we move into the seasonally tough period for pollution. Modi has been consistent on his desire to reduce pollution. In the Modi speech yesterday, he said “Brothers and Sisters, a while back I spoke to you about the environment. The big and better impact of which we are moving towards the Gas Based Economy is going to be on our environment. When there are thousands of new CNG stations in the country, the industries will get uninterrupted gas, CNG will be easily available in most districts of the country to fill taxis, auto and cars, so the pollution will be less as well. It is India’s COP21 commitment will further strengthen. It will strengthen India’s contribution to protect the global environment. This will further enhance the brightness of India’s leadership on the global platform.”
Modi’s government target is for natural gas to be 15% of its total energy mix in 2030. BP Amoco data shows that India natural gas consumption of 5.2 bcf/d was equal to 6.2% of India’s energy mix in 2017. Modi’s government target is for natural gas to be 15% of India’s energy mix in 2030. For comparison, natural gas is currently 28.4% of US energy mix,. 22.1% of Japan’s energy mix, 14.3% of South Korea’s energy mix, and 6.6% of China’s energy mix.
India’s natural gas consumption should increase by ~1.3 bcf/d to get to 15% of its energy mix, We projected India’s natural gas consumption using a starting point of the 2017 actuals of 5.2 bcf/d and 6.2% share of energy mix. (i) We moved the starting point to 12.6 bcf/d, which would be how much natural gas consumption would have been in 2017 if were equal to 15% of the 2017 energy mix. We then grew that 12.6 bcf/d by 4% per year, which is less than the latest 10 yr growth rate in total energy mix of 5.7% per year. The end result is that India natural gas consumption would need to be 21.8 bcf/d in 2030 to be 15% of the energy mix in 2030, up 16.6 bcf/d from 2017 of 5.2 bcf/d, or an annual average growth rate of ~1.3 bcf/d per year. (ii) The only comments we have seen from Modi is that natural gas consumption will be at least 250% of today’s levels, which would be an increase of 7.8 bcf/d or 0.6 bcf/d per year growth. That is solid growth, but would mean that natural would be nowhere near 15% of its energy mix in 2030.
India’s Natural Gas Consumption To Reach 15% Of Its Energy Mix
Source: Stream Asset Financial
India is another reason why LNG supply is needed in the next five years. India is not China, but it is going to be a significant global LNG factor now that its infrastructure is being expanded and a reason why LNG supply is needed, especially for the early 2020’s. If India wants to get natural gas to 15% of its energy mix in 2030, its natural gas consumption will need to increase by ~1.3 bcf/d per year. This is the equivalent to two Cheniere phases every year, or almost the equivalent of 75% of LNG Canada’s first phase of 1.7 bcf/d.