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Why is it becoming difficult for India to Import Natural Gas ?

By News Canvass | Aug 03, 2022

Europe is drawing away much of the global supply to its shores ahead of winter . Because of this India is facing problems for importing natural gas from international markets.

Lets first understand why India needs to Import Natural Gas ?
  • India’s domestic production of natural gas can only partially fulfil the expected increase in demand in the coming years, and the country will have to increase its imports to fill the gap.
  • Such dependence on external sources makes the country’s energy security vulnerable to regional and global events. 
  • India requires a sustained supply of energy to support its ambitious growth and welfare targets for the coming years.
  • A study by the government think tank, NITI Aayog projects that India’s energy consumption will reach 2,300 million tons of oil equivalent by 2047, of which natural gas will contribute 173 mtoe under the determined effect scenario.
  • Natural gas is a clean fuel that has wide-ranging utility in the energy and non-energy sectors. It can be used for power generation, city gas distribution to support domestic activities, as an alternative fuel for the transportation sector, fertilizer and petrochemical industries and in certain other industries.
  • Within the power sector, natural gas has received little traction primarily because the per unit cost of electricity generated by a gas-fired power plant in India is higher than that from fossil fuels such as coal.
  • Moreover, there has been a shortage in the supply of gas for the power plants. Filling the gap with imported gas cannot be a solution, however, given the financial non-viability of gas sourced from abroad.
  • Over the years, India has made adjustments in its strategy to achieve stability in oil imports. From the Gulf to the Arabian Peninsula, India’s sources have been gradually expanding to include countries from Africa and Latin America.
  • In the early 1990s and 2000s, India was involved in multi-lateral negotiations for building natural gas pipelines from Iran, Turkmenistan and Myanmar.
  • However, these pipeline projects failed to make headway owing to various factors such as fluctuating geopolitical events, differing positions on gas pricing, and changing nature of bilateral relations among countries involved in the project.
  • Today India sources substantial amounts of its natural gas imports from Qatar, with whom it has a long-term agreement. India has also been purchasing natural gas from the spot markets.

Europe Importing More Natural Gas

  • The European Union reached an agreement with Norway to source more natural gas from the Nordic nation as the bloc tries to lower surging prices and boost security of supplies after Russia, its biggest provider, cut flows to almost half of member states.
  • The 27-nation EU is racing to phase out Russian gas and find new sources across the world after President Vladimir Putin’s invasion of Ukraine.
  • Moscow has started cutting shipments to Europe, affecting 12 member states and pushing Germany to raise its gas-risk level to the second-highest “alarm” phase.
  • The supply woes have pushed gas and power prices to record levels, fueling inflation. Europe is paying a very high price for its dependence on Russian gas.
  • In 2018, around 40% of EU natural gas imports came from Russia .In the same year, Gazprom, Russia’s state-owned gas monopoly, supplied a total of 200.8 billion cubic meters of gas to European countries, with 81% heading to Western Europe.
  • On June 3, the European Union adopteda sixth package of sanctions, including a partial embargo on Russian oil. The sanctions will ban seaborne imports of Russian crude oil as of December 5, 2022, and ban petroleum product imports as of February 5, 2023.

But can Europe cope without Russian Oil?

  • Global crude flows are changing quickly. In the past few months, Europe has started to import more oil from the United States, West Africa, and the Middle East.
  • European refiners seeking substitutes for Urals blend could turn to crude oil streams from Norway, Nigeria, Iraq, and the United States, although spot cargoes of many crude oil streams are limited in a tight market.
  • Replacing lost volumes from Russia is no small task, but refiners frequently adjust to changing supply conditions. The drop in Russian exports in the past two months has been lower than expected.
  • Even as more oil and gas majors and commodity traders have stopped lifting Russian cargoes, the country has been able to sell more volumes to Asia, particularly India.

Consumption Reduced by Users

  • Russia’s Supply cuts have created panic among all the Europeans which is bidding up the LNG prices and pulling cargoes from all directions to fill its storage ahead of winter when increased heating needs boost gas demands.
  • Europe’s LNG imports have reportedly risen 56% in the first seven months of this year from the year-earlier period. GAIL has a 20-year contract with Gazprom for an annual 2.5 million tonnes of LNG.
  • Customers are unwilling to take replacement supplies at double or triple the expected rate, leaving GAIL with the task of rearranging the available pool among buyers as much as possible.

Why India is Facing Difficulty?

  • Indian Oil’s tender for a spot liquefied natural gas (LNG) cargo received no bids recently. Even LNG contracted under long term deals is no longer secure as Russia’s Gazprom has suspended supplies to GAIL.
  • This has resulted in GAIL reducing gas supplies to industries , including fertilizers power and petrochemical plants. Supplies for the use in CNG vehicles and homes are being maintained. But the industrial segment served by the city gas companies are getting effected.
  • Scarcity is the new challenge for Indian gas consumers already battered by high prices, currently at around $42 per mmBtu in the Asian spot LNG market.

How India is overcoming the challenge?

  • India and the European Union (EU) share a common fate in terms of fossil fuels: both are poor in proved indigenous reserves and need substantial amounts of imports to fill the gap between domestic production and consumption.
  • India, which has largely remained neutral in its foreign policy in course of the Russia Ukraine conflict, had purchased its regular LNG shipment from Russian gas firm Gazprom, with which it had struck a 20-year contract in October last year 2021 to meet its massive demands.
  • The western sanctions on Russian natural gas dipped the gas prices by default by over 29% for Indian oil firms, leading to a cut in the losses. India is the world’s fourth largest LNG importer. Net imports have increased by 84% over the past decade.
  • Increasing dependence on gas imports is a threat to India’s energy independence and security. Import dependency may lead to vulnerability in the case of international political changes. Spot LNG prices have seen extreme volatility in the past two years, and that has become a major concern for all gas importing countries, including India.
  • India has mandated state-run GAIL (India) Ltd to import gas and buy from local difficult fields to meet growing demand growth from household and transport sectors as cheaper supplies from old blocks is not enough, a government order said.
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