LNG import better for India, states KPMG report

New Delhi, April 4:

Given the geopolitical uncertainties, India would be better advised to pursue import of liquefied natural gas (LNG) rather than exploring gas pipeline options, says global consultant KPMG International.

In its new report India Energy Outlook, KPMG has stated, “Cross border pipelines are still facing uncertainties. While initiatives related to cross border natural gas pipelines with Myanmar, Turkmenistan, Iran and others have been under discussion for quite some time, the political environment and international climate have been unfavourable, thus delaying these projects indefinitely.” The global consultants feel that even if these projects do materialise, the country may face potential supply disruptions “if political issues emerge over medium term”.

Given the scenario, “LNG may be the answer to the Indian natural gas supply issue”. On the issue of price, the report states, “while current international prices cannot be passed on to major user industries like power and fertiliser sectors, which together constitute 70 per cent of the demand, reforms in the power sector will lead to greater ability to take higher prices in the long term”.

Except for LNG terminals at Dahej and Hazira, all other gas requirements of the country are currently met through domestic sources, which are able to meet just 50 per cent of the demand. Despite some new finds, domestic gas production is expected to remain far below demand with imports being looked at as the only viable option to meet the shortfall. The report points out that identification of new sources of gas supply would be critical to sustaining the demand for gas in the country. From current levels of eight per cent share in the energy fuel mix, the share of gas usage is expected to rise to 22 per cent by 2020.

Experts say that while LNG supplies are available, price remains a major deterrent given that Indian customers have been used to buying gas at regulated prices of less than $3 per million British thermal unit (MBTU).

However, in view of the high cost of petroleum products and shortage of gas supplies, the report states that in the short term, even at $6 per MBTU, natural gas “does become relatively affordable for existing power and fertiliser plants because they are being impacted by shortages, and industrial customers”.