Indian LNG demand continues to post substantial growth y/y, as production slips and strong consumption boosts the call for imports. We project Indian 2020 LNG import growth of 3 Mt y/y, enabled by a boost in import infrastructure by January 2020 and further inland pipeline debottlenecking. Pakistan and Bangladesh continued to increase their imports y/y in September and we see their takes rising by 1.5 Mt and 1.6 Mt y/y respectively in 2020.
Provisional data showed Indian LNG imports climbed to 2.73 bcm in September, up from 2.62 bcm a year earlier. LNG imports were down y/y in Q1 19 but averaged y/y gains of 0.16 bcm/m in April–September. We expect these gains to continue through next year, with imports rising to 25.6 Mt (34.8 bcm)from our estimate of 22.6 Mt) (30.7) bcm for 2019.
We expect Indian production to rise y/y in 2020 but still fail to keep pace with growing domestic consumption. Indian gas producers are anticipating increasing output in 2020-2022. BP and India’s Reliance Industries are due to hold an auction for 5 mcm/d of incremental supply from the R-Cluster field in the KG deepwater block on 6 November. The two firms will be able to sell gas from the field to their affiliates, which could help ensure a taker for the gas. The producers were reportedly looking for an offtake price of 9% of Brent prices, which would equate to around 5.50 $/mmbtu on 28 October. The firms expect to add of 28 mcm/d of aggregate production from the KG block by 2022.
We see downside risk to India’s production growth. The country’s main producers have this year been struggling to keep pace with last year’s output. Indian net production of 2.49 bcm in September was down from 2.68 bcm a year earlier, meaning output in April–September slipped by 2% per month y/y. Indian producers have fallen well short of their production targets at times this year. The largest absolute shortfall against targets in September was ONGC’s output. Part of this was the result of a fire at the firm’s Uran oil and gas processing plant near Mumbai, which cut the capacity to deliver offshore gas to nearby cities. India’s Petroleum Planning and Analysis Cell (PPAC) said this month there was no remaining impact on production from the fire. Still, the firm’s output was already down over July–August.
The biggest absolute y/y losses in output in recent months have been at India’s offshore fields. Q3 19 offshore output dropped to 1.69 bcm from 1.80 bcm a year earlier. PPAC reported lower gas demand from some customers and it is possible that LNG could be competitive with offshore production in areas where there are
sufficient gas connections for this type of substitution. The regulated price cap allowed by the Indian government for offshore production was 9.32 $/mmbtu for April–September and the government set the price for October 2019–March 2020 at 8.43 $/mmbtu. Both are far higher than physical delivery prices for India, with the second half of November, assessed at around 6.17 $/mmbtu on 25 October.
Consumption rising quickly
Y/y drops in the cost of LNG have likely contributed to growth in demand for the fuel in several Indian sectors. City gas demand has been expanding strongly in recent months, with July–August consumption—the latest data available—rising by 0.31 bcm y/y. Of that increase, 0.2 bcm was met by LNG supply. There were also substantial increases in demand for LNG from the fertilizer and power sectors. There is likely latent demand for gas that is unlocked by lower prices. The government has also lowered regulated prices for October 2019–March 2020 to 3.23 $/mmbtu from 3.69 $/mmbtu in April–September, which could further encourage y/y growth in Indian gas consumption.
LNG import growth infrastructure dependent
India should have a combined 13 Mtpa of additional LNG import infrastructure y/y at the start of January 2020 to accommodate higher LNG imports. But there is still some uncertainty over downstream connections. The expansion of Petronet’s Dahej terminal to 17.5 Mtpa from 15 Mtpa in July allowed imports to rise into line with its capacity. Flows also tested capacity at Shell’s 5 Mtpa Hazira terminal recent months. Insufficient breakwater infrastructure at Petronet’s 5 Mtpa Dabhol terminal also constrain the ability to take more LNG. This restricted its imports during the May–September monsoon season. The terminal took just one cargo in September.
We see the 5 Mtpa Kochi terminal further ramping up imports y/y as further sections of the 5.8 bcm/y Kochi-Mangalore pipeline are completed. The remaining 350 km of the route was due to be completed this month but, as there has been no update from pipeline operator GAIL, we expect that the project has been delayed again. The first 96 km Kochi-Koottanad section was completed in June, but this may not have been fully utilised. We see a boost in the terminal’s sendout capacity to 25-30% next year.
New or planned terminals, including Indian Oil Corporation’s 5 Mtpa Ennore, H-Energy’s 4 Mtpa Jaigarh, the Gujarat State Petroleum Corporation and Adani Group-sponsored 5 Mtpa Mundra and Swan Energy’s 5 Mtpa Jafrabad terminal will further boost capacity. Ennore, which started in June, received 0.18 bcm in August–September. H-Energy expects to start the Jaigarh terminal in Q4 19 and is looking for additional supply agreements. There have been local press reports that the Mundra terminal, in Gujarat province, could start operations in December. This is despite a protracted contractual dispute between the project partners. The terminal will reportedly only have 1.5 Mtpa of capacity for 18 months after commissioning. We forecast Jaigarh starting up at some point in Q1 20.
New record imports in September
Import infrastructure growth y/y in Bangladesh and higher utilisation of Pakistan’s second import terminal, on top of increased Indian imports, resulted in South Asian imports rising to 3.2 Mt in September. This was a new record for the region and up from 3.2 Mt in July.
|Fig 1: India LNG imports, bcm||Indian offshore production, bcm|
|Source: PPAC, Energy Aspects||Source: PPAC, Energy Aspects|