India’s growing gas needs are being heard ‘loud and clear’ in the tiny, gas-rich nation of Qatar.
India’s falling domestic gas production has meant that the country now has to rely on increasing its imports of natural gas.
Natural gas through possible pipeline routes such as the Iran-Pakistan-India Pipeline, Turkmenistan- Afghanistan-Pakistan-India Pipeline and Myanmar pipeline has fallen by the wayside over the years, due to contentious border issues. The reliable way to import gas seems to be through shipping it, as liquefied natural gas (LNG).
India’s first natural gas imports came from Qatar; today, the Gulf country is hoping to continue its tryst with the world’s largest democracy.
Natural gas production from the eastern offshore KG D6 block in India, which is operated by Reliance Industries, is projected to fall to 24 million cu m/day in 2013-14, compared with 28 million cu m/d in the current financial year. It is forecast to fall further to 20 million cu m/d in 2014-15.
This is worrying, considering natural gas has become the hydrocarbon of choice for power generation and transportation across the world, and India is keen to catch hold of that trend.
Before delving further into India’s natural gas needs and who is going to supply them, it is interesting to understand the current-day dynamics of natural gas trade.
The Paris-based International Energy Agency (IEA)says among the headwinds facing gas are continuing weak demand in Europe, resilience of coal in North America as well as persistent bottlenecks and disruptions in the LNG value chain that in 2012 caused an exceptional global decline of LNG supply.
At the same time, Asian demand for gas remains red-hot and gas is beginning to gain traction as a transport fuel.
So, it becomes quite clear that Asia will become a driver for natural gas markets in the years to come.
However, the trading of natural gas in the Asia-Pacific region is dominated by long-term contracts in which the price of gas is indexed to that of oil.
As the price of gas between Asia and other parts of the world has widened in recent years, observers have raised serious doubts about the sustainability of this pricing model.
Asia’s growing reliance on imports and long-term contracts means that the region needs to be able to move from its traditional model to a more competitive and sustainable market. It is this pricing that the exporters are keeping a close watch on these days, before signing a long-term, 20-year contract for LNG supply.
Qatar’s Energy Minister Mohammed bin Saleh Al Sada has said the Gulf country is keen to meet India’s growing demand and that the dialogue is still on.
But what prevents immediate shipping arrangement could well be the pricing problems. It seems from trader reports that Qatar is asking for a price which is 15 to 16 per cent of the Japanese Crude Cocktail (JCC), the average price of customs- cleared crude oil imports to Japan, while India is willing to pay only 14.5 per cent of JCC.
According to Barclays’ latest market research, the share of Qatar’s LNG exports to Asia has reached 73.5 per cent in January 2013 witnessing a sharp jump of over 30 per cent as compared with 56.4 per cent in 2012.
So, why Qatar is so keen on negotiating with Asia and India in particular, and retaining its customers can be understood by the growing shale gas commercialisation in the US. Even, as recently as the company’s 2011 Annual Report, Qatar Petroleum (owner of all the gas that comes out of Qatar, either as Qatargas or RasGas) lists North America as the target market for its LNG Production from its Ras Laffan complex.
Whilst the company also listed trusted Asia and West Asia as destinations, these “mega-trains” (gas chilling units) have a total capacity of 15.2 mtpa, and the potential income from exporting this amount of gas to the US had to be replaced.
LNG import terminals in the US could well become relics of the bygone era when the US was a huge importer of energy.
Other gas partners
So while it is evident Qatar is keen on wooing India, it is worthwhile to explore who the other gas partners to India are. India imports LNG from its two operational terminals — Dahej and Hazira. India’s major importer, Petronet LNG, has deals in place with the US and Australia for gas imports and is revamping its Dahej terminal in Gujarat to double its existing capacity to 20 mtpa by 2020.
It has signed initial pact with Houston-based United LNG to buy four million tonnes of liquefied natural gas per annum for 20 years, beginning 2018. Contracts are in place for Australian LNG import as well.
Again, India is competing with China for its gas needs, but the shale gas finds in the US and possible imports means that the consumers in the gas market have better clout than ten years ago; when the Asian countries were in fact competing with America for gas from Russia, Qatar and Iran.
The gas market trade and pricing is in dire need of better regulation and now with more players, it may just happen. So, will India’s projected need for gas push the country to forge long-term contracts with gas exporting nations?
It is interesting to note that India’s power and fertiliser plants are not quite ready for long-term commitments for the relatively expensive ‘imported’ gas.
So, on the one hand, companies will continue negotiating with the exporters on price and invest in gas importing terminal, but on the other, they may have the conundrum of what to do with all that gas.
(The author is editor of Oil & Gas Middle East and Refining & Petrochemicals Middle East)