With global supply starting to lead balances, understanding sources of possible demand-side response is important. One source of LNG growth in the last few years has been South Asia, which continues to add LNG infrastructure.
Bangladesh posted 17.2 TWh of oil-fired generation last fiscal year, while gas-fired power plants had a 30-40% level of utilisation. Gas availability has been a major issue, with around 13 TWh of gas-fired generation reportedly lost and replaced with oil-fired generation. Overcoming the gas shortages would push oil out of the mix, adding 1.9 Mtpa of LNG demand. The recent drop in spot LNG prices should allow the country to buy sufficient gas to alleviate existing constraints.
Pakistan also burns a considerable volume of oil and has gas-fired capacity that suffers from low utilisation due to gas shortages. With the addition of 3.6 GW of new CCGTs since the start of 2017, the country now has sufficient gas capacity to replace all 43 TWh of power generation coming from liquids, which would provide demand for an additional 3.6 Mtpa of LNG. With 2018 LNG imports into Pakistan at 6.1 Mtpa and 10 Mtpa of existing regas infrastructure, realising most of the fuel switch will push the country to its import capacity.
The level of outright fuel switching available in India is limited by installed gas-fired power capacity of 24.8 GW. 2018 gas-fired generation of 50 TWh means a maximum of 125 TWh of additional generation is possible if gas is turned into a baseload power source. With hard coal-fired generation at 987 TWh in 2018, that switch to gas would only displace 13% of Indian coal-fired generation. If all 125 TWh of additional gas-fired generation is realised, there would be an increase in underlying Indian gas demand of 17.5 Mt y/y.
With domestic coal supply unlikely to be shifted out of merit, competitive generation will be found among utilities using some of the 172 Mt of coal imported by India in 2018 (up by 19% y/y). The bulk of imports came from Indonesia (105 Mt), South Africa (38 Mt) and the US (12 Mt). With Indian power buyers focussed on low-calorific value (CV) coals priced well below high-CV benchmarks, LNG has to be low-priced to be competitive. We estimate that if the price of delivered LNG to India falls to 6 $/mmbtu, given prevailing coal prices, there will be little increase in gas demand from India’s power sector. At 5 $/mmbtu we expect more response, with some 30 Mt of steam coal imports from more distant exporters of higher-CV coal at risk of fuel switching. Some 30 Mt of coal displacement by gas would support 8.4 Mt of additional gas demand. For India to manage this, existing import infrastructure constraints need to be alleviated.