High gas prices crimp India's gas-fired power generation, demand growth

High gas prices have forced around 25 GW of India's gas-fired power generation to idle and jeopardized natural gas infrastructure build-out that was based on a sub-$10/MMBtu price assumption, Akshay Kumar Singh, managing director and chief executive of Petronet LNG, said at a conference in Singapore.

"We have never seen such type of volatility in the last 50 years," Singh said at the Asia Pacific LNG & Gas Summit. Petronet LNG is India's main state-owned gas importer and supplier.

India has an ambitious target to increase the share of natural gas in its primary energy basket from around 6.7% currently to 15% by 2030. This will require natural gas consumption to increase from around 45 million mt to over 150 million ton by 2030, Singh said.

"We were heavily targeting dependence on LNG. And in fact, our assessment was that today our import is 50% LNG and 50% is domestic [gas]; and LNG's share would have gone to 75% by 2030," he said.

"Pre-COVID everyone was talking about $5-$6/MMBtu and we were expecting the same thing in India. All the infrastructure development plan was happening based on the assumption that there will be a sustainable supply of natural gas at sub $10/MMBtu," Singh said.

He said suppliers need to realize that if there is demand destruction and natural gas remains underground, some other form of fuel will replace gas which is not good for meeting net-zero targets.

Gas shortages and high prices have forced large-scale switching to alternative fuels, including boosting coal-fired capacity and restarting of mothballed oil-fired power units in many Asian countries, in addition to energy rationing, power cuts and other contingencies.

Out of India's annual consumption of around 45 million mt of natural gas, 25 million mt is LNG; and out of the future target of 150 million ton mt/year by 2030, the largest growth was expected to be from LNG in the range of 110 or 120 million mt/year, Singh said.

"So LNG is going to be the main source of meeting our energy requirement in the near future and we can't be dependent on only spot [purchases]," Singh said.

He said out of 25 million mt of LNG demand, a portfolio of almost 20 million mt is under long-term contracts and 5-7 million mt of demand is exposed to the spot market.

"If the spot [volume] is at a reasonable price that increases the consumption of gas in our energy basket. We have a huge potential to increase the gas consumption. There is no dearth of consumers," Singh said.

He said, however, around 25,000 MW of gas-based power plants that can consume 25 million mt of gas is not operating just because of high prices.

Out of India's total power generation capacity of 403 GW as of May 31, 2022, only 6.2% or 25 GW is gas-fired while more than 52% is coal-fired, and the remaining is from renewables, hydro, nuclear and other sources, official data showed.

India's LNG demand in particular is concentrated in the industrial and fertilizer sectors that account for over 75% of demand, and around 10% is used in the power sector. Domestic gas demand production is limited by poor hydrocarbon resources.

Even the long-term contracted prices have risen to $14-$15/MMBtu from $5-$6/MMBtu because of crude prices above $100/b, and Henry Hub gas prices have risen above $9/MMBtu, he said.

"The long-term price is also not looking sustainable as of today unless and until crude stabilizes around $70-$80/b," Singh added.

"So the consuming nations are totally confused what to do," Singh said.