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Natural gas consumption expected to increase with increasing capacities

India looks to grow total trunk pipeline network to around 32,600km

gail GAIL is India's biggest natural gas marketing and trading firm and owns more than two-thirds of the country's 16,234-km pipeline network | GAIL India Twitter

India's natural gas consumption is expected to increase in the near term due to an increase in transmission and production capacities in the country. The completion of major pipelines—the Jagdishpur-Haldia, Mehsana-Bhatinda, the Kochi-Bangalore GAIL pipeline, and the upcoming northeast gas grid—is expected to grow India’s total trunk pipeline network from 17,126 km to around 32,600 km, increasing the reach of gas to a larger number of consumers in the country.

From October 2021, the Indian government plans to boost gas prices by up to 70 per cent. The current APM (Administrative Price Mechanism) gas price is $1.79 per mmBTU (British thermal unit) and an increase in the price is expected to help domestic companies increase margin.

“India's medium term natural gas consumption prognosis remains positive, according to the International Energy Agency (IEA), thanks to the growing infrastructure and supportive environmental laws. India's net demand growth is estimated to be 40 percent and is driven by industrial consumers. Residential, transportation and energy industries are also likely to fuel demand. The Indian oil and gas companies are also investing heavily in projects,” remarked Kshitij Purohit, Lead International and Commodities at CapitalVia Global Research Limited.

Many oil and gas companies have made big expansions plans of late. Oil and Natural Gas Corporation (ONGC) announced that it will spend Rs 300 billion in FY22 to boost oil and gas output. In order to expand beyond its natural gas business, GAIL (India) Ltd announced in July 2021, that it will invest Rs. 5,000 crore to establish a portfolio of renewable energy targeting a capacity of at least 1 gigawatts and build plants for both compressed biogas and ethanol. BPCL also announced its plan to establish its first generation ethanol production plant in Telangana at an estimated investment of Rs. 1,000 crore.

“On the back of continued healthy economic expansion, India's energy demand is expected to expand faster than that of all major countries. India's energy demand is anticipated to be 1,516 mega tonnes by 2035. India plans to expand its natural gas infrastructure to 34,500 kilometers by adding a 17,000 kilometer gas pipeline. By 2022, the existing regasification capacity of 42 MMT per year will be increased to 61 MMT per year. The demand is going to increase largely with the increase in population. The Indian companies are all set to expand their capacity or diversify their portfolio to increase their market cap,” added Purohit.

As per a report by Motilal Oswal, India currently has an LNG regasification capacity of 42.5 MMT Per Annum. However the operable capacity is only 30 MMT per annum but it is expected to rise by 12 MMT per annum due to the removal of constraints at existing LNG terminals. 24mmtpa of capacity additions are underway at Dahej, and the greenfield terminals at Chhara, Jafrabad, Dhamra, and Jaigarh over the next few years. Just the KG Basin is expected to result in 45 mmscmd of incremental domestic gas (around 47 percent of the domestic gas consumption).

Interestingly the Motilal report also observes that both India and China had been facing poor availability of domestic natural gas. However, strong policies for reducing pollution, rise in pipeline infrastructure, and availability of natural gas has resulted in China’s natural gas consumption rocketing (at 20 percent CAGR) since the start of the 21st century. Factors such as the National Green Tribunal (NGT) focusing on reducing pollution, 90 per cent rise in length of trunk pipelines over the next few years, as well as increased availability of LNG operable capacity and availability of domestic gas etc are expected to bode well for India's gas sector. As per the report China was firmly on its way to raising the share of natural gas in its primary energy mix to 15 percent by CY 2030. At the start of the 21st century, natural gas consumption in India, at 72 MMSCMD (Million Metric Standard Cubic Meter Per Day) was marginally higher than that in China of 69 MMSCMD. However, rising focus on reducing emissions in both transportation and industrial segments, resulted in China’s gas consumption growing a staggering 13 times since the start of the 21st century.

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