Need to rethink India’s LNG strategies to affordable models

by Shahkar Abidi 22 Oct 2021

Image Courtesy: PIB India

India may have to rethink its strategies going forward amidst spiralling LNG prices, according to a top government official, speaking at an industry event on Wednesday. 

Tarun Kapoor, Secretary, Ministry of Petroleum & Natural Gas said that the current situation has brought home the realisation about the perils of dependence on imports. India currently  has  targets  to increase the percentage of gas share in its energy basket to 15 percent by 2030 from 6 percent at present.  The country currently seeks  nearly 55 percent of its natural gas needs through imports.   

"We now have to rethink" said Kapoor, clarifying that earlier the plan was to make more use of natural gases even if that  includes those sourced through imports,  before eventually moving away towards the  renewables. The Ministry's seniormost bureaucrat did not elaborate on what the new  strategy is likely to be. The positive impact of development however could be faster adoption of renewable sources such as biofuels to meet the demand, he added while speaking at the fifth edition of India Energy Forum by CERAWeek in New Delhi.  

The spot LNG prices have increased 15-fold to over $30 per million metric British thermal unit (mmbtu) in the past one year and is likely to hurt imports and consequently consumption of CNG and LNG gases for automotive fuels. The price of gas was just under $2 mmbtu around the middle of last year. Even domestic prices which are  based on regulated  formulas have spiked  to $2.9/mmbtu for H2FY2022 from $1.8/mmbtu in H1FY2022. The ceiling for gas produced from difficult fields has increased to $6.13/mmbtu for H2FY2022. Rough estimates indicate that gas prices may jump further to about $40 mmbtu on account of annual increase in  demand in Europe and US ahead of winter. 

CNG adoption may slow down
The development seems significant from the automotive industry's perspective as sale of CNG as a fuel is primarily derived from LNG. Industry statistics indicate the growth in demand for CNG cars reached an all-time high of 49 percent (YoY) to 171,000 units during FY2021.

Sensing the trend, top passenger vehicle makers, Maruti Suzuki and Hyundai have been pushing CNG-models in the past few years.  While Maruti recorded nearly 45 percent growth to 157,000 units during last fiscal, Hyundai saw more than 100 percent growth, albeit at a lower base registering over 23,000 units sales. 

On the fuel availability front, 700 CNG stations were added last year, taking the total stations to over 2800 across the country. The blueprint is to take it further to 10,000 in next 7-8 years. Further, CGD companies such as Mahanagar Gas (MGL) have laid out plans for setting up mobile refuelling units in the next few years to meet the increasing demand for CNG. Gas marketing companies, on other hand, are firming up their target to build LNG fuel stations across the country's industrial corridors. 

Price differential between petrol/diesel, CNG
Though the difference between CNG versus petrol/diesel still holds around 40-60 percent, the situation may turn tables if the differentiation breaches the 30 percent mark, warns industry experts. CGD companies have already begun passing on the costs to motorists and have already started passing on the cost increase to the motorists. 

Import bills higher on rising oil, gas prices
Hardeep Singh Puri, Minister of Petroleum & Natural Gas  said that India's import bills have gone up by almost three times in the last financial quarter (Q2FY2022) in comparison to the similar period previous year, on account of crude prices.  As per government's own estimates, the fuel bill which forms over 20 percent of the country's total import expenditures stood at $ 24 billion during Q2FY2022 as against $8.8 billion during Q2FY2021. " Prices have to be predictable, dependable and stable," Puri said.

According to Puri, about $60 billion investment is underway in the country in setting up the infrastructure-pipelines, terminals, regasification facilities amongst others. Regarding biofuels, the Minister said that ethanol-blending has already reached 10 percent and will touch 20 percent in a few years. Under the Sustainable Alternative Towards Affordable Transportation (SATAT) scheme, 5000 CBG plants are being set up, with $20 billion investment.

Petrol screams past Rs 113, diesel at Rs 104 a litre, 25-30% costlier than aviation turbine fuel

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