China and India ready for more LNG [NGW Magazine]
China and India are two of the world’s fastest growing economies and second and fourth biggest consumers of LNG. China closed the year 2018 with record volumes of LNG imported for the second year in a row, while India’s imports too were at an all-time high; albeit much lower than that of China.
According to China’s customs department, the country imported 53.78mn metric tons of LNG last year, up 41.2% on 2017. India imported almost 21mn mt of LNG in 2018, up by almost 11% year-on-year, according to the Indian oil ministry data. One of the biggest reasons for rise in imports in both these Asian countries has been the government’s push to promote the use of cleaner fuels such as natural gas in households, industrial units and transport.
At present the share of natural gas in the overall energy mix of these two countries is less than a tenth but both governments want to take it significantly higher in the coming years. Since domestic gas production in both China and India is not keeping pace with the growth in demand, the gap is being filled by imported LNG and this trend is likely to continue.
As LNG imports expand, both China and India are working on increasing their respective import capacities by building more receiving terminals over the next five years.
China is the more aggressive one
Asia’s biggest economy is likely to have 68 LNG receiving terminals in the next five years, more than three times the current number, Guo Zonghua, president of leading state-owned think-tank Shaanxi Gas Design Institute told an event in November.
He said that at present, there are 20 LNG receiving stations in China, with a further 20 under various stages of construction. There are 28 projects that have been proposed. The forecast was included in a report published early-December by state-owned CNPC.
China’s annual LNG supply in the next five years will equal its domestic gas production and piped gas imports combined, he added. In the next five years, the annual supply of LNG in China is expected to increase to 462.2bn m3/yr (342mn mt/yr), he added.
China’s gas demand has risen sharply rise owing to government’s aggressive coal-to-gas switching policy. Strong demand saw spike in LNG imports in 2017 when China imported a record 38.13mn mt of LNG. China also imports gas through two pipelines: China-Myanmar and Central Asia Pipeline. And this year, it will start receiving Russian gas through the Power of Siberia pipeline.
According to Wood Mackenzie, regasification capacity has become a constraint, notably in winter when the requirement for LNG is highest. With the growth momentum in LNG, China will need more LNG receiving capacity. Although the government is hopeful of major addition in regasification capacity, Miaoru Huang, senior manager at Wood Mackenzie is of the opinion that not all of the proposed projects will go ahead. “We expect only those with some firm sales into downstream markets will get the investment decision,” he said.
Currently there are many proposed projects which add up to over 100mn mt/yr of regasification capacity, according to WoodMac. China's regasification capacity is to reach around 125mn mt/yr in the next five years.
India’s regasification capacity to double
As demand for gas grows and domestic output continues to struggle, India’s dependence on imported gas is expected to mean doubling entry capacity for LNG to above 60mn mt/yr in five years.
HK Manchanda, chief general manager (gas), India Oil Corporation told the LNG India Summit in November in New Delhi that India's regasification capacity is set to increase from 30mn mt/yr in 2018 to 61.5mn mt/yr in 2023. At present, India has four fully operational LNG receiving terminals, all on the west coast. Petronet LNG operates a 15mn mt/yr terminal at Dahej in the state of Gujarat. It also operates a 5mn mt/yr terminal at Kochi in the southern state of Kerala. Shell operates a 5mn mt/yr terminal at Hazira, also in the state of Gujarat while Gail operates a 5mn mt/yr terminal at Dabhol in the state of Maharashtra. The combined regasification capacity of these four terminals is 30mn mt/yr.
India’s fifth terminal at Mundra, also in Gujarat and operated by GSPC LNG, was inaugurated recently but is yet to get a commissioning cargo. The terminal can receive 5mn mt/yr of LNG. Manchanda said the terminal is expected to be commissioned in the first half of 2019. Another terminal that is expected to be commissioned next year is the one being built by Indian Oil Corporation at Ennore in the southern state of Tamil Nadu.
Ennore will have a capacity to handle 5mn mt/yr of LNG. H-Energy’s 4mn mt/yr floating terminal at Jaigrah in Maharashtra, which was supposed to be commissioned by end-2018, will now be operational early-2019. Additionally, Petronet is expected to expand the capacity of its Dahej terminal from 15mn mt/yr to 17.5mn mt/yr next year. The three new terminals and an expanded Dahej terminal will add a combined 16.5mn mt/yr regasification capacity next year, taking India’s total capacity to 46.5mn mt/yr by end-2019.
In 2020, Swan Energy’s 5mn mt/yr floating terminal at Jafrabad in Gujarat is likely to come online while in 2022 Adani Group’s 5mn mt/yr Dhamra terminal in the eastern state of Odisha is expected to be commissioned. The year 2023 will likely see commissioning of 5mn mt/yr Chhara terminal in Gujarat being developed by a joint venture of state-owned Hindustan Petroleum and private firm Shapoorji Pallonji.
Of the six new terminals expected to be commissioned till 2023, three will be in the state of Gujarat, which will practically become the LNG hub of the country with a total of five operational terminals. India’s west coast will have a total of eight terminals. Dhamra and Ennore will the only two receiving terminals on India’s east coast.
When compared with China, India’s demand for LNG is far more sensitive to price. This means if price of LNG goes beyond a certain level, demand may not grow as much as expected which may render a lot of the new capacity idle.
According to K. Ravichandran, senior vice president at rating agency ICRA, the already struggling Indian power sector will not be in a position to absorb high cost of LNG; as regards fertilisers, the government may allocate more domestic gas to the upcoming urea plants in order to reduce the subsidy; with regard to city gas development sector, only industrial and commercial customers will be absorbing LNG.
“As a result, the new terminals will be constrained to meet the demand largely from refineries, petrochemicals and other industrial customers. Therefore, we could be heading for overcapacity in the next three to five years, which will pull down the capacity utilisation for the industry, with new terminals affected more than incumbents, who have cost competitive tariffs,” said Ravichandran.