The Gas Revolution

THOUSANDS OF WORKERS of IHB Ltd. and its sub-contractors are toiling across swathes of west and north India to lay the 2,805 kilometre (km) Kandla-Gorakhpur liquefied petroleum gas (LPG) pipeline crossing Gujarat, Madhya Pradesh and Uttar Pradesh. IHB is a joint venture of Indian Oil (IOC), Bharat Petroleum Corporation (BPCL) and Hindustan Petroleum Corporation (HPCL). The ₹10,088-crore line, which will get LPG from import terminals at Kandla, Dahej and Pipavav, and refineries at Koyali (Vadodara) and Bina, is expected to be commissioned by next year. The pipeline, the longest in India, will play a vital role in India's ambition to revolutionise its energy consumption basket by betting on gas, reducing dependence on coal.

Natural gas, 50-60% less polluting than coal, will work as the transition fuel that can get India to its ambitious goal of net-zero emissions by 2070, when the nation aspires to be fully powered by renewable energy.

By February 2026, India will invest ₹3 lakh crore, or $40 billion, to expand gas infrastructure — pipelines, port-based LNG (liquefied natural gas) regasification terminals, city gas distribution (CGD) networks and gas exploration projects.

The investment will more than double the gas pipeline network from 16,000 km in FY19 to 34,600 km by 2024. The number of LNG import terminals will increase from five in 2016 to 10 by 2024 with capacity expanding from 35 million tonnes per annum (mtpa) to 62 mtpa. Piped natural gas (PNG) connections will increase from 3.2 million in November 2016 to 60 million in 2030 (as of March-end 2022, India had 9.3 million). As gas grid widens, 297 geographical areas (GAs) covering 98% of the country's population and 88% area will get access to PNG. The number of compressed natural gas (CNG) terminals will rise from 1,094 in November 2016 to 10,000 by 2030, the year when government expects natural gas to account for 15% of India's energy mix, up from 6% in FY15, when the foundation of this transition was laid. Yet, it's just the beginning. The global average is 24.7%.

"New discoveries and pan-India backbone, besides policy support, will make gas a key fuel in three-four years," says Arun Kumar Singh, chairman and managing director, BPCL. "Natural gas demand is expected to grow robustly as policy impetus and rising domestic production, coupled with LNG imports, expand the market from current low levels," Shrikant M. Vaidya, chairman and managing director, IOC, said at the recent annual general meeting (AGM) of the company. Even private players agree. Gautam Adani, chairman of Gujarat-based Adani group and owner of India's largest CGD player, Adani Total Gas, says, "What the world has seen of energy forms in last 100 years is set to change in the next 30-40 years." He should know. After all, when Narendra Modi was chief minister, the state was a pioneer in building a massive piped gas distribution network. In 2014, when Modi became prime minister, he pushed for a nationwide gas distribution network.

India, the world's 13th-largest natural gas consumer and 4th-largest LNG importer, brought policy reforms to attract investments in gas infrastructure. One of the steps involved allowing 100% foreign direct investment in infrastructure related to natural gas, LNG regasification and exploration and production (E&P).

Though mega infrastructure creation across the length and breadth of the country is being led by both public and private sectors, heavy-lifting is being done by PSUs such as oil marketing companies, GAIL, Petronet LNG, Oil And Natural Gas Corporation (ONGC) and Oil India (OIL) under policy direction of Petroleum and Natural Gas Regulatory Board (PNGRB).

Here's how India intends to progress towards a gas-based economy.

Gas: The Big Picture

McKinsey says gas — lesser polluting of the two fossils vis-a-vis coal — is the only fossil fuel whose demand is expected to grow beyond 2030 before peaking in 2037. According to International Energy Agency's (IEA's) World Energy Outlook 2021, India's 6.1% share of global primary energy consumption is likely to touch 9.8% by 2050 as energy intensive industries from developed world and China relocate here. Indian economy is expected to rise from $3.12 trillion now to $5 trillion by FY25. IEA projects primary energy demand will nearly double to 1,123 million tonnes of oil equivalent by 2040. The prime minister has announced plans to invest ₹7.5 lakh crore ($102.49 billion) on oil and gas infrastructure over next five years, of which at least 40% is projected to be used for building gas infrastructure. Central government's Petroleum Planning & Analysis Cell says demand for gas is set to more than double to 380 million metric standard cubic metres per day (mmscmd) by FY30. Industry is expected to account for 40% of this growth.

As of FY22, fertiliser companies accounted for 30% of the 178 mmscmd gas consumption, followed by CGD (20%), power producers (15%), refinery and petrochemical companies (14%) and others (21%). By FY30, refinery and petrochemical units will account for 33%, followed by CGD (30%), fertiliser units (17%), power companies (8%) and others (12%).

Natural gas — and later blue and green hydrogen — will be a crucial source of near zero-carbon energy (green hydrogen is made from water electrolysis, while blue hydrogen is extracted from carbon captured during industrial processes). That calls for creation of infrastructure to meet this demand.

Building Pipelines

The expansion of gas network over last few years has been epic. "First inter-state natural gas pipeline in India was commissioned in 1987. India built a 15,000 km natural gas pipeline network by 2014. Today, more than 16,000 km pipelines are being laid. The work is going to be over in four-six years," the prime minister had said while inaugurating the Kochi-Mangalore natural gas pipeline in January.

The first CNG station was built in 1992. Till 2014, there were 900 CNG stations. Around 1,500 more were set up in next six years. The target is 10,000 by 2030. India had 14 crore LPG connections till 2014. It added a similar number in next six years. "Gas is a highly regulated business. Only 6% population had access to PNG till 2014. It is going to be nearly 98%," says Suresh Manglani, CEO, Adani Total Gas. "Now, practically all of India is covered by CGD," says Sumit Kishore, executive director (marketing), GAIL India, in a call with analysts.

On July 21, Union minister of state for petroleum and natural gas, Rameshwar Teli, informed Lok Sabha that 21,715 km natural gas pipelines were already operational while 13,605 kms were under construction. "With the aim of increasing the share of natural gas in our energy mix, there is focus on developing natural gas infrastructure and implementing One Nation-One Gas Grid," he said.

India ought to move towards the less polluting fuel. Even now, the 6.72% share of gas in India's primary energy mix is way lower than U.S. (34.82%; 2,279 mmscmd), Russia (52.31%; 1,126 mmscmd) and China (8.18%; 906 mmscmd). Gas accounts for more than 50% energy mix of gas-producing countries such as Iran, the U.A.E. and Egypt.

The Pipeline Rush

Globally, around 20% trunk gas pipeline additions announced for completion up to 2026 are in India, according to GlobalData, a data and analytics company. That is about 18,600 kms (16,000 kms in FY19 to 34,600 kms by 2024), more than the planned additions in China (17,810 km) and U.S. (12,305 km). GAIL India, which accounted for 14,385 km gas pipelines as of March 2022, is building another 5,000 kms. IHB's Kandla-Gorakhpur pipeline would be linked with 22 LPG bottling plants — Uttar Pradesh (13), Madhya Pradesh (six) and Gujarat (three). It will transport 8.25 million metric tonne per annum (mmtpa) LPG, 25% of India's total demand, to 34 crore users in these states. It will also supply LPG to 21 more bottling plants in Maharashtra, Gujarat, Madhya Pradesh, Rajasthan and Uttar Pradesh.

OMCs are not far behind. "IOC is building the national gas pipeline grid. At present, 1,800 km standalone projects are under implementation, in addition to JV pipelines such as North-East Gas Grid and three other cross-country pipelines," says Shrikant Vaidya. Last year, BPCL commissioned the 355-km Bina-Kanpur multi-product pipeline. HPCL's ongoing cross-country pipeline projects are Vijayawada to Dharmapuri, which includes a new terminal at Dharmapuri, and Hassan-Cherlapally LPG pipeline.

Work is on to build regional pipelines, too. Those under construction include Kakinada-Vizag-Srikakulam, Ennore-Nellore, Kakinada-Vijayawada-Nellore and Srikakulam-Angul in Andhra Pradesh, North-East Natural Gas Pipeline Grid, Kanai Chhata-Shrirampur line in West Bengal, Mumbai-Nagpur-Jharsuguda line through Maharashtra, Madhya Pradesh, Chhattisgarh and Odisha, and a line from Jamnagar to Dwarka in Gujarat. The North-East Grid is being implemented by Indradhanush Gas Grid, a venture of IOC, ONGC, GAIL, OIL and Assam-based Numaligarh Refinery. It will be connected to Barauni-Guwahati natural gas trunk line as part of the Urja Ganga scheme.

More Gas Terminals

Gas terminals are one of most important pieces of the puzzle as India meets over half its gas demand through imports. The six LNG regasification terminals — Kochi, Dabhol, Dahej, Hazira, Mundra and Ennore — have 40 mtpa capacity. These are being expanded to 62 mtpa by 2024 with four new terminals, at Dhamra in Odisha, Jaigarh in Maharashtra and Chhara and Jafrabad in Gujarat. Existing terminals are also being expanded. Petronet, for example, has two terminals, at Dahej (17.5 mmtpa) and Kochi (5 mmtpa). It is adding 5 mmtpa capacity at Dahej. "It will be completed by the beginning of 2025," says Vinod Kumar Mishra, director (finance), Petronet LNG. The company is also likely to build a floating terminal at Gopalpur in Odisha. IndianOil LNG has developed a 5 mmtpa terminal at Kamarajar port in Ennore. IOC has also entered into offtake agreements with developers of upcoming terminals at Dhamra (3 mmtpa) and Jafrabad (1 mmtpa). It may also double Ennore's capacity to 10 mmtpa when demand grows.

City Gas Networks

The other big piece of the coming gas infrastructure is piped gas to homes to reduce dependence on costlier LPG bottling/distribution and lower use of more polluting ways of cooking food. While Gujarat was the first state to have a wide network of PNG in Ahmedabad and Surat, many Indian cities such as Delhi and Mumbai had tried to supply piped gas in some pockets way before that. Among the early CGD starters were Vadodara (1972), Surat, Bharuch & Ankleshwar (1980), Upper Assam (1985), Agartala (1999), Mumbai & Greater Mumbai (1995) and National Capital Territory of Delhi (1998). India invited bids for CGD in 2008 but progress was slow till 2016. In eight rounds of bidding till 2018, PNGRB could entrust only 56 GAs. The momentum picked up after that. In the 10th round in November 2018, 50 GAs were awarded, while in 9th round the same year, the number was 86. PNGRB invited 430 bids for 61 GAs in 215 districts (19 states and one Union Territory) during the 11th round earlier this year — it will entail over ₹80,000 crore of investment.

In end-March 2022, India had 93.02 lakh PNG connections and 4,433 CNG stations. There were 297 GAs authorised by PNGRB in 27 states and UTs. Two dozen companies have won bids for CGD infrastructure, including Gujarat Gas, Indraprastha Gas, Mahanagar Gas, Adani Total Gas, Torrent, besides OMCs and GAIL Gas that are focussed on specific regions.

Adani Total Gas got 14 GAs in 11th round. With 52 GAs, it is the largest CGD player, catering to 10% population (nine million households) in 95 districts of 12 states. "We are going to spend about ₹20,000 crore in next eight years. Now, we are spending ₹1,500-2,000 crore a year. This will rise to ₹3,000 crore-plus in coming years with GAs in the 11th round," says Manglani. The company has six lakh PNG consumers and 349 CNG stations. One of the early entrants into PNG and CNG, it recently sold 37% stake to France's Total, among the world's largest energy companies.

Another success story is Gujarat Gas, which has an extensive CGD network in North and West India comprising 27 GAs with more than 17.40 lakh households, over 13,700 commercial customers, 721 CNG stations, 4,500-plus industrial units and over 33,500 km CGD pipeline network (CGD pipe network is one-two inch pipes of steel and plastic going into households). The first CGD player in India to sell over 10 mmtpa a year is doubling infrastructure spending from ₹500 crore a year to build 3,000 km new CGD network, says its top management.

Even IOC, which plans to spend ₹2 lakh crore to meet its target of zero emissions by 2046, got nine GAs covering 26 districts in the 11th round. IOC, with its JV companies, is already present in 49 GAs. Of these, 26 are standalone and 23 are through JVs — 19 through Indian Oil-Adani Gas and four through Green Gas. Eight out of 26 standalone GAs have been commissioned.

BPCL secured licences for 8 GAs in the 11th round. With various JVs, it has licences to develop CGD networks in 25 GAs covering 62 districts and 50 GAs covering 105 districts. The company plans to invest ₹1.4 lakh crore over next five years as part of its energy transition plan and has identified gas as one of the six strategic growth areas, says BPCL's Arun Kumar Singh.

HPCL is building CGD network in 11 GAs in Haryana, Uttar Pradesh, Uttarakhand, West Bengal and Rajasthan. HPCL's four JV companies — Avantika Gas, Bhagyanagar Gas, Godavari Gas and HPOIL Gas — are building and operating CGD networks in nine GAs in Madhya Pradesh, Andhra Pradesh, Telangana, Maharashtra and Haryana.

For some, CGD is a regional play. BPCL and GAIL India have Indraprastha Gas, which operates in Delhi and had 711 CNG stations and 20.6 lakh PNG domestic connections as on March 31, 2022. Sabarmati Gas, a JV of BPCL and Gujarat State Petroleum Company, has set up 158 CNG stations and is supplying PNG to 2.47 lakh domestic customers in Gujarat. Central UP Gas, which operates in Kanpur, parts of Unnao, Bareilly and Jhansi in Uttar Pradesh, has 74 CNG stations. Maharashtra Natural Gas has set up 167 CNG stations and is supplying PNG (domestic) to 5.39 lakh customers in Maharashtra and parts of Karnataka. Haridwar Natural Gas, started by BPCL and GAIL to supply gas in Haridwar in 2016, has 24,667 domestic connections and four CNG stations.

Where Is the Gas?

With its huge import dependence, from where will India get gas to feed the massive infrastructure that it is building? Experts say global availability is not going to be an issue and companies are waiting for the market to stabilise after the Russia-Ukraine war to enter into long-term import contracts. Globally, several big gas discoveries have been made in recent years. These include ExxonMobil's 30-plus gas discoveries in Guyana since 2015, a series of gas discoveries in Mozambique in the last decade (of which Rovuma Basin alone holds over 125 tcf of natural gas) and recent gas discoveries in Africa like Yakaar-1 in Senegal, and Nour -1 and Katameya in Egypt.

Experts are convinced the reason for current high prices is not the shortage of gas but shortage of vessels instead — there are only 641 LNG vessels in the world for transporting gas. E.U. is contracting a large number of LNG vessels to make up for disruptions in supply of Russian gas. Russian pipeline gas exports to E.U. are expected to fall over 55% between 2021 and 2025. For India, this will mean access to cheaper Russian gas. Last year, China entered into long-term contracts for 52 mmscmd from West Asian nations. India is also going to do the same in the coming two-three years, say industry sources.

India's projected demand of about 551 mmscmd natural gas (equivalent to 550.74 mmscmd) by 2040 is not a big ask in a world where already over 380 million tonnes (equal to nearly 7,000 mmscmd natural gas) is traded every year. After the Ukraine-Russia war, prices are widely expected to stabilise as Europe is set to import additional 137 mmscmd LNG in 2022. IEA's world energy outlook 2022 says U.S. gas demand will fall by 110 mmscmd by 2030. Stronger climate policies will accelerate Europe's shift from gas. "Due to current high prices, India's gas demand for residential PNG may grow a modest 2-5% in the shorter term, while CNG demand is expected to rise 25-30% on the back of expanding network of CNG stations and number of vehicles," says Naveen Vaidyanathan, director, CRISIL

In its Q3 2022 analysis for 2021-2025, IEA says approximately two-thirds of India's incremental gas demand will be met by domestic production. Imported LNG will take care of the rest. The size of gas transmission network could increase by 75% and LNG import capacity by 40% during the period, it says. "All developed nations are primarily running on gas and India should have created this infrastructure years ago as availability of gas in the world is not an issue. Now, CGD players and others are in a capex mode to create greenfield infrastructure. Once they start generating revenues in two-three years of commissioning of projects, they are sure to get double-digit profits," says Sanjay Sethi, managing partner & CEO, Nestor Capital Consulting LLC.

Then there is gas produced locally. India's gas consumption was low for last 10 years. Ambitions soared after Reliance Industries' hyped discovery at KG D-6. However, output fell short of early projections, though KG-D6 contributes 20% of domestic production (91 mmscmd) by supplying 19 mmscmd. Out of total natural gas produced in India, 67.3% is extracted offshore in West and East, and the rest in Assam (10%), Rajasthan (5%), Tripura (5%), Gujarat (4%), Tamil Nadu (4%), Andhra Pradesh (3%), Jharkhand, Madhya Pradesh and West Bengal (2%) and Arunachal Pradesh (0.1%).

Net domestic production, 127 mmscmd in FY12, fell to 76 mmscmd in FY20, but rose to 91 mmscmd in FY22. As far as consumption goes, it went from 176 mmscmd in FY12 to 141 mmscmd by FY15. It rose slightly to 175 mmscmd by FY20 before Covid-19 reduced demand to 166 mmscmd in FY21. In FY22, it rose 6.9% to 178 mmscmd, the highest in the last decade.

Government, too, is focusing on finding new reserves and tapping existing fields. The Director General of Hydrocarbons (DGH), since the launch of Hydrocarbon Exploration and Licensing Policy in 2016, has offered about two lakh square kms in seven rounds of bidding for 134 blocks. The eight round bidding process for 36,316 square kms is over and winners are yet to be announced. A couple of weeks ago, DGH announced it will offer 26 blocks over nine sedimentary basins covering an area of 2.23 lakh square kms for exploration and development through international competitive bidding. About 36 blocks in these regions are estimated to have an oil and gas resources potential of 1,775 metric million tonnes of oil equivalent.

India is estimated to have natural gas reserves of 1.37 trillion cubic metres (TCM) but has been unable to tap much of this potential. ONGC, the country's biggest oil and gas exploration company, has a huge responsibility here. "Some of our biggest fields under development have substantial gas. Our mega offshore deep-water project in East Coast, Cluster-2 Development of KG-DWN-98/2, is expected to enhance natural gas production," Alka Mittal, former chairman and managing director, ONGC, told Fortune India a few days before her superannuation in August this year.

ONGC plans to increase gas production from 57.3 mmscmd in FY22 to 57.5 mmscmd in FY23 and 66.6 mmscmd next year. Mittal says ONGC is going to develop the Daman Upside gas field project by investing ₹4,144 crore. ONGC is planning to invest ₹31,000 crore in exploration over the next three years and has roped in ExxonMobil as E&P partner. The company has cumulatively invested ₹1.5 lakh crore in E&P over past five years. To date, 20 major projects with cost of ₹59,000 crore are under implementation, she says.

Reliance Industries is also increasing gas production. "With commissioning of MJ Field by end-2022, KG-D6 will increase its contribution to India's gas production to nearly 30%," RIL chairman Mukesh Ambani said at the company's 45th AGM. He said RIL's oil and gas team did a spectacular turnaround with production jumping nine times and revenues crossing $1 billion in FY22. RIL and BP are developing three deep-water gas developments in KG D6 — R Cluster, Satellite Cluster and MJ — expected to produce 30 mmscmd gas by 2023. Vedanta's Cairn Oil & Gas is aiming to expand gas production from 1,700 mmscmd to 4,700 mmscmd by 2026.

Oil India Ltd (OIL), which produced 8.2 mmscmd of natural gas in FY22, the highest since its inception 63 years ago, is pursuing E&P. It drilled seven exploratory and 31 development wells last year alone and is planning oil and gas exploration in Assam and other areas — Assam Shelf & Assam Arakan Fold belt, Rajasthan basin, Mahanadi onshore, Andaman onshore and Kerala-Konkan onshore. "We have identified five fields for accelerated development where intensive interventions and addition of production facilities over next few years is expected to yield more than 4 MMT of crude oil and 13.7 mmscmd of natural gas," Ranjit Rath, chairman and managing director, said recently.

Assets Abroad

India has 54 overseas oil and gas exploratory assets in 24 countries. ONGC Videsh has stake in 33 oil and gas projects in 15 countries and gets oil and gas from 14 assets — production was about 12.330 million tonnes oil equivalent (MTOE) in FY22, 1.4% of the projected Indian energy demand of 853 MTOE by 2030.

In 2019, ONGC's overseas subsidiary, ONGC Videsh Ltd. (OVL), reported a major gas discovery in its deep offshore block BM-SEAL-4 in Brazil's Sergipe Alagoas Basin. Petrobras, with 75% participating interest, is the operator there. OVL holds a 25% stake. ONGC, IOC and BPCL have a stake in a gas project in Mozambique that is expected to start production next year. "Bharat Petro Resources, our upstream subsidiary, submitted declaration of commerciality for the oil and gas discovery in Brazil's BM Seal 11 last year. The field development plan, followed by the final investment decision, is expected to be submitted shortly," says BPCL's Arun Kumar Singh. BPCL recently received approval from Cabinet Committee of Economic Affairs for investing $1.6 billion in the asset.

G2G Import Agreements

Government to government agreements are expected to account for 40-45% of India's gas imports by 2030. India's gas imports have risen from 49 mmscmd of LNG in FY12 to 88 mmscmd in FY22. Qatar accounts for 40% with the rest coming from the U.A.E., Oman, U.S., Russia, Nigeria, Angola, Nigeria and Australia. Iran has also expressed willingness to sell more oil and gas. "We have 14 mmtpa of LNG contracts — almost 4.8 mmtpa from Qatar, 5.8 mmtpa from U.S. and 2.5 mmtpa from Gazprom (Russia)," says Rakesh Kumar Jain, CFO, GAIL India. GAIL is raising ₹25,000 crore for expansion over the next two-three years. In 2021, 372.29 mmtpa LNG was traded globally. India's share was 24.02 mmtpa (6.5%). The biggest importers were China (21.3%), Japan (20%) and South Korea (12.6%).

Transnational Gas Highways

India has been dreaming of building transnational gas pipeline for decades. It hoped to bring natural gas through Iran-Pakistan-India pipeline, conceived in 1990s to connect Iran's South Pars gas field to the Indian subcontinent, but quit in 2009, a year after signing nuclear deal with U.S. The project is yet to take off.

Another was Turkmenistan-Afghanistan-Pakistan-India pipeline. Costs and geopolitical and geographical challenges are impeding the project.

The next big hope is the India-Oman natural gas pipeline. South Asia Gas Enterprise, promoted by New Delhi-based Siddho Mal Group, and UK-based Deepwater Technology Company, plan to set up a Middle East to India Deepwater Pipeline from Oman-U.A.E. coast to Gujarat. The pipeline can lead to savings of $1 billion a year according to current LNG prices So far, talks at G2G level have not progressed much, say industry sources.

Other than natural gas, efforts are also on to meet demand via other forms of gas such as biomass. Government aims to produce 15 MMT compressed bio gas (CBG) from 5,000 plants by FY24 under Sustainable Alternative Towards Affordable Transportation scheme launched in 2018.

As the gas network comes into its own, India's dreams of transitioning to a gas-based economy will gradually become a reality.