The failure of India's national electricity grid in late July, termed the world's worst power cut, highlighted the critical state of the rapidly expanding country's energy distribution infrastructure. Territory in the northern and eastern parts of the country, inhabited by 600 million people, or more than one-half India's population, was off-grid for two days. The shutdown was attributed to the inability of the antiquated national grid to deliver power to local electricity networks. The system may have been tripped by a surge in demand for power, not least for use in pumping water from deep aquifers and in air conditioning as daytime temperatures in the affected areas soared above 35˚C.
Power generation in India represents somewhat less of a problem than power transmission. Approximately 26,000 MW of new power plant capacity is due to be commissioned in 2012 as an increasing number of private enterprises step up to compete in the sector.
Nevertheless, the availability of fuels to drive these new facilities remains a key concern in a nation with an increasingly affluent and rapidly growing middle class.
As an example of the fuel availability problems, the late arrival of this year's monsoon rains has hit hydroelectric output. Hydropower traditionally meets about 20% of the country's energy needs but water reservoir levels have now dropped to about one-quarter of their capacity and one-half that of 12 months ago.
Elsewhere, the state monopoly coal producer is unable to dig up coal fast enough to meet demand and power generators are faced with the prospect of boosting their purchases of expensive imported coal.
Another costly fuel import is crude oil. Each year India, the world’s fourth largest oil importer, spends USD 100 billion on crude oil, or about one-third of its foreign purchases. When government taxes are added on, the Indian consumer is paying roughly the same for a litre of gasoline as his counterpart in Europe.
Clean-burning natural gas has been identified as an important future fuel for India. High hopes had been pinned on the KG-D6 block in the Bay of Bengal’s Krishna Godavari basin, the country's richest gas find. However, output from this domestic offshore reserve has not reached anywhere near expected levels and is now in decline only a few years after gas was discovered.
The estimated recoverable gas reserves from the two main gas fields in the KG-D6 block have recently been downgraded by 70% due to "unforeseen geological surprises". Further exploration in the area continues but hopes for a worldscale discovery are not high.
As part of efforts to diversify its energy resource base, India has been turning increasingly to seaborne imports of liquefied natural gas (LNG). Since the arrival of the first cargo, from Qatar, in January 2004, LNG purchases have grown steadily. In 2011 India and China, were the world’s fastest growing LNG markets.
LNG imports through the India's two receiving terminals – at Dahej and Hazira, both in Gujarat on the northwestern coast – jumped by 37% last year, to 12.3 million tonnes (mt). Shipments to Dahej have been running at 110% of nameplate capacity since early 2011.
Both Dahej and Hazira are currently being expanded while two new west coast terminals, at Dabhol in Maharashtra and Kochi in Kerala, are due to be commissioned this year.
At least four other LNG import terminal projects, including three on the East Coast, have been proposed. Several of the schemes could make use of a floating storage and regasification unit (FSRU) in an initial phase to enable LNG purchases to be fast-tracked prior to the completion of a new shore-based terminal.
Indian LNG imports are expected to reach 30 mt by 2015, equivalent to about 40% of the country's total gas supply, when Dabhol, Kochi and the expanded Dahej and Hazira facilities are working to capacity. In 2017, if the four most advanced of the planned import terminal projects come to fruition, LNG arrivals could be approaching 50 mt.
Indian gas buyers are scouting the world for possible sources of LNG. One contract which has already been signed calls for the delivery of 1.5 million tonnes per annum (mta) of LNG from Australia to the new Kochi terminal, commencing in 2014 and for a period of 20 years.
Other potential LNG supply sources are the US Gulf, Russia, Angola and Mozambique. Additional deliveries from Qatar are also a possibility and gas traders have been approached to discuss what LNG volumes they may available in future. Some Indian purchasers have also expressed an interest in investing in the liquefaction plants that might supply their future LNG cargoes.
Qatar currently exports 7.5 mta of LNG to India under long-term contract and the proximity of the two countries means that only three LNG carriers are required to handle this volume of cargo. The sourcing of cargoes from further afield over the coming decade will require the addition of a substantial number of new LNG carriers to the Indian delivery fleet.
The availability of LNG receiving terminals linked to their own facilities via pipeline will provide power plant operators with a reliable source of fuel in future. This, in turn, will enable an uninterrupted supply of electricity to local customers. India currently has a countrywide network of 12,000 km of gas pipeline while another 12,000 km is under construction. If the additional 7,000 km now going through the bidding process is realised, the country will have 30,000 km of natural gas pipelines in place by 2017.
Sensitive to the country's needs, the Indian government has recently removed the 5% customs duty that had been in place for LNG imported by power generation companies. Indian buyers are also confident that the prices they currently pay for gas imported as LNG will ease as major new production facilities worldwide come on stream from 2015 onwards.
Another advantage of the gas option is the fact that a gas-fired power station can be constructed more quickly than a coal-burning plant. As mentioned, the temporary use of an FSRU holds the potential to further speed project realisation.
All the Indian LNG receiving terminals mentioned above, with the exception of Dahej, will have a capacity of 5 mta. Dahej is being expanded from 10 to 15 mta. If the projects come to fruition and India is importing 50 mta of LNG through eight terminals by 2017, it could well be placed just ahead of China and Korea as the world’s second largest buyer of LNG after Japan.
Source: BIMCO