Gas Price Benchmarking in India DI stands for Domestic-International Super Critical TG Order Booked...

ENINCON Energy & Infra Consulting

Copyright© 2013 ENINCON, All rights reserved

Gas Price Benchmarking in India Factoring sourcing and development options for LNG,CBM and Shale Gas

June 2014

Price Factor Benchmarking Report Series – EREP



Gas Price Benchmarking in India

08 – Impact Analysis of gas price hike on stakeholders

ILLUSTRATIVE

8.1 Upstream Sector, Midstream Sector, Downstream Sector India’s expanding economy and growing population have led to increased consumption of primary energy resources such as coal, oil and natural gas in the country. In line with this, its primary energy consumption grew at a compounded annual growth rate (CAGR) of 6% to 563.5 million tonnes of oil equivalent (MTOE) in 2012 from 420.1 MTOE in 2007. The share of natural gas in its primary energy mix increased marginally from 8% in 2008 to 8.7% in 2012.This is fairly low, compared to the global average of 24%, primarily due to supply-side constraints. Furthermore, in terms of individual consumption, India’s annual gas consumption of 44 cubic meters (cm) per capita is far behind the global average of 470 cm per person.

Figure 8.1 : Low consumption of natural gas in India, 2013

Source: BP Statistical Review of World Energy 2013, The World Bank , E&Y and ENINCON Analysis

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1,500

1,000

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0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

Gas share in energy mix, %

Singapore

Australia

South Korea Germany Japan

France

China Brazil India

Canada

US

UK

Malaysia

Turkey

Russia

Note: DI stands for Domestic-International

Super Critical TG Order Booked during 12th FYP (Already Commissioned Capacity)

Super Critical TG Order Booked during 12th FYP (Upcoming Capacity)

Super Critical TG Order Booked during 13th FYP ( As of May’2015)

Order Booked Market Share Gencos Wise

Share of Order

Given (In GW)


Copyright© 2013 ENINCON, All rights reserved Source: ENINCON Research and Analysis

The Government of India appointed a committee in May 2012 under the Chairmanship of Dr. C Rangarajan, Chairman, Economic Advisory Council to the Prime Minister, to look into several aspects relating to the Production Sharing Contract (PSC) mechanism in petroleum industry, including approach to domestic gas pricing. This followed several contentious developments on the interpretations of PSC clauses, concerning the industry players, Ministry of Petroleum & Natural Gas (MoPNG), Directorate General of Hydrocarbons (DGH) and Comptroller & Auditor General (CAG) of India. After deliberations, the Rangarajan Committee submitted its report to the GoI in December 2012. As per the Committee-recommended formula for natural gas, the domestic gas price would be computed based on the trailing 12-month average of (a) Volume-weighted net-back pricing of Indian LNG imports (b) Volume-weighted price of US's Henry Hub, UK's NBP and Japan's JCC linked price

Figure 8.2 : Future natural gas demand-supply scenario (mmscmd)

Source: MoPNG and ENINCON Research

135 148 140

114

87 149 371

FY14

XX XXXXXX

FY15

XXX XXXXXX

FY16

XXX XXXXXX

FY17

LNG imports Domestic production Natural gas demand Deficit

The MoPNG had sent the proposal on the new uniform gas price to the Cabinet Committee of Economic Affairs (CCEA), based on the recommendations made by the Rangarajan Committee and on June 27, 2013, the latter approved the gas pricing formula which will be applicable from April 1, 2014 for a period of 5 year. The pricing is for all natural gas domestically produced – conventional, shale, or coal bed methane (CBM) — with a few exceptions and will be reviewed every quarter.




9.2 LNG Infrastructure in India The development of LNG globally has been the major impetus to globalisation of natural gas, thereby by connecting remote areas and distant markets. Currently ~ 24 percent of the global energy supply is catered by natural gas. LNG trade has gone up to ~ 250 MMTPA contributing 32 percent of the natural gas traded in the world. This section discovers the demand supply scenario of LNG across the globe and derive inferences for same in India.

Figure 9.1 : Economics for LNG Production as Per Value Chain in India

Source: Enincon Analysis

LNG Value Chain

Cost ($/MMBTU)

5 MMTPA Project

Investment

Upstream field

development

Liquefaction Plant

Shipping & Transport

Regasification Terminal

X- X X – X.X X.X – X.X

X.X – X.X

$ X – X Billion

$ X – XX Billion

$ X – X.X Billion

$ X – X.X Billion




Figure 9.2 : Share of Natural Gas and LNG in Energy Mix of World – Region Wise

Source: IEA, World LNG Report and ENINCON Analysis

30%

33%

11% 22%

49%

Region Wise Share of Natural Gas in Energy Mix

North America

Europe

Asia Pacific

Latin America

Middle East

0.3%

6%

5%

5%

3%

Region Wise Share of LNG in Energy Mix

9.2.1 LNG Demand & Supply – Global Outlook World LNG Demand : The LNG consumption globally varies as per the continents and availability of domestic gas, total available energy resources and the gas transportation infrastructure. The share of LNG vis-à-vis natural in the energy mix of the continents is depicted in Figure 9.2. Interestingly, the share of LNG in the energy mix of Middle East region is just of 3% as compared to natural gas share of 49%. There has been a consistent growth in the demand of LNG across the globe and several countries are importing large volumes of same in a sustainable manner. Japan reigns the LNG imports globally with ~ 90 MMTPA of imports. Second in the race of LNG imports is South Korea with almost one-third of Japan’s import volumes i.e. ~ 37 MTPA.


Figure 9.3 : Country Wise LNG Imports (MMTPA)


87

37 15

14 14

13 11

8 6 5 4 3 3 3 2 2 2 2

7 238

0

50

100

150

200

250

* Others Include : Canada, UAE, Greece, Thailand, Puerto Rico, Dominican Republic, Indonesia & Netherlands

India stands as the fifth largest LNG importer globally with an import volume of ~ 14 MMTPA. The country wise LNG import status is shown in Figure 9.3.




Figure 9.4 Country Wise Global LNG Supply ( in %age & MMTPA)


33%

10%

9%

8% 8%

6% 5%

5% 3% 2%

2% 2% 2% 2% 0.1% 2% 238

1%

0%

20%

40%

60%

80%

100%

World LNG Supply : The LNG supply globally is dominated by a set of five countries which contribute more than 67% to the world LNG supply. These countries are Qatar, Malaysia, Australia, Nigeria and Indonesia. The LNG supply status is depicted in Figure 9.4.




Gas Price Benchmarking in India DI stands for Domestic-International Super Critical TG Order Booked...

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