India’s liquefied natural gas imports are picking up after years of weak demand as companies like Total and Adani bet heavily on a turnaround in a market that has so far exceeded high expectations.
India has set ambitious goals to become one of the world’s largest LNG importers by more than doubling the share of gas in its energy mix to 15 percent by 2030, helping to tackle a wave of infrastructure investment. Pull.
But the LNG import market has shrunk since the Covid-19 pandemic and the Russian invasion of Ukraine, pushing prices much higher than those of domestic fuels like coal.
According to Refinitiv, LNG imports into India have increased for three consecutive months from March, with imports reaching 2.7 billion cubic meters in May. While still below pre-pandemic levels, companies claim May’s 66 percent growth in imports compared to February heralds the start of a boom for India’s LNG sector.
Petronet, the country’s largest importer, said last month it expects a “massive surge” in demand, while Adani Total, a joint venture between the French energy giant and the embattled Indian group, said it is “seeing momentum and an increase of the demand across India”. ”.
At the end of May, Adani Total opened a new LNG terminal in Dhamra, on the east coast of India, with a regasification capacity of 5 million tonnes per year. It is the most significant development between the couple since US shortseller Hindenburg Research accused Adani of fraud and market manipulation in January. Adani vehemently denies the allegations.
Total and Adani signed the agreement to build Dhamra in 2018, their first project together. Total went on to invest more than $3 billion in city gas distribution and solar power with Adani, though it halted a planned $4 billion investment in a green hydrogen venture following Hindenburg’s allegations.
The French company has defended its ongoing relationship with Adani. The Dhamra terminal “reflects TotalEnergies’ ambition to support India’s energy transition and security of supply,” Total said in April.
Analysts said the Dhamra terminal is poised to meet the demand for gas in India’s less developed but densely populated east. “It’s a crucial terminal (as) India is trying to get 15 percent gas,” said Ayush Agarwal, an analyst at S&P in India.
Still, the outlook for the LNG market in India remains uncertain. Agarwal said he does not expect demand to pick up significantly until next year, while India’s existing LNG infrastructure remains heavily underutilized.
Apart from Petronet’s Dahej terminal in the western Indian state of Gujarat, the rest of India’s six LNG import terminals had an occupancy rate of less than 40 percent in the year ended March, according to data from the Ministry of Petroleum and Natural gas.
LNG also remains an expensive fuel source with volatile prices. LNG en route to India costs just under $10/mmbtu, according to pricing agency Argus, higher than domestically produced gas at $8.27/mmbtu for May and $6.50/mmbtu for gas from older fields.
“Domestic produced coal remains much cheaper on an energy basis than imported LNG, so there is little room for fuel switching for power generation,” said Matthew Drinkwater, head of gas and power analysis at Argus.
Drinkwater said the fertilizer industry – which accounts for a third of gas demand – could start using more LNG to make products like urea or ammonia. But he added that “a sudden increase in demand for LNG from the fertilizer sector is not in the offing” as it is still competitive to simply import the finished products.
Analysts are divided on whether India can meet its 15 percent target on time. “Covid and the war between Russia and Ukraine have really affected the demand for LNG in the country,” said Hengky, an analyst at Refinitiv. But he added that, with the recent price drop, the target looks “more plausible”.
Additional reporting by Chloe Cornish in Mumbai