India's LNG Imports to Rise 4%-10% in 2025

Key Takeaways:

I. India's evolving energy mix, with the rise of PNG and increased demand from the power and industrial sectors, is reshaping its LNG import needs.

II. Geopolitical risks, including supply chain vulnerabilities and price volatility, necessitate a diversified LNG sourcing strategy and robust risk management for India.

III. Strategic investments in LNG infrastructure, coupled with a focus on efficiency and sustainability, are crucial for maximizing the benefits of LNG imports for India's energy security.

India's LNG imports are projected to grow 4-10% in 2025, reaching 27 million tons. This increase reflects the country's growing energy demands, driven by a projected 11% rise in natural gas consumption, primarily in the city gas distribution and power sectors. While domestic production is expected to increase with ONGC's KG gas production reaching 10 mmscmd by FY25 end, it won't fully meet the surging demand. This article examines the multifaceted factors shaping India's LNG trajectory, including the evolving dynamics of domestic demand, the volatile global LNG market, geopolitical risks impacting supply chains, and the critical role of infrastructure development. Understanding these interconnected elements is crucial for assessing India's energy security strategy and its position in the global energy landscape.

Evolving Demand Dynamics: A Multi-Sectoral Perspective

India's natural gas demand is undergoing a significant transformation, driven by a complex interplay of factors across various sectors. While the residential sector has historically been a major consumer of liquefied petroleum gas (LPG), the rapid expansion of piped natural gas (PNG) infrastructure is leading to a gradual shift away from LPG. This transition is projected to result in a 7% decline in LPG demand by 2030, even as the overall demand for natural gas continues to rise. This dynamic highlights the evolving nature of India's energy consumption patterns and its implications for LNG imports.

The growth of PNG connections, projected to increase tenfold to 12.5 crore by 2032, reflects the government's push for cleaner and more efficient energy sources in the residential sector. PNG offers advantages in terms of cost-effectiveness, convenience, and reduced emissions compared to LPG. This transition aligns with India's broader energy policy objectives and its commitment to reducing reliance on traditional fossil fuels. However, this shift in the residential sector must be analyzed in conjunction with the evolving demand dynamics in other key sectors.

Counterbalancing the decline in residential LPG demand is the robust growth in natural gas consumption in the power and industrial sectors. These sectors are projected to experience an 11% increase in natural gas consumption, driven by factors such as government policies promoting natural gas as a cleaner alternative to coal in power generation and its increasing use as a feedstock in various industrial processes. This growth underscores the importance of these sectors in shaping India's overall natural gas demand and its implications for LNG imports.

The combined effect of these evolving demand dynamics across different sectors creates a complex picture for India's LNG import strategy. While increased domestic gas production, with ONGC's KG basin projected to reach 10 mmscmd by FY25 end, will partially offset the reliance on imports, it won't be sufficient to meet the projected demand. Therefore, LNG imports will continue to play a crucial role in meeting India's growing gas needs, requiring a nuanced approach that considers the specific demand drivers in each sector and the interplay between domestic production and imports.

Geopolitical Risks and Supply Chain Resilience

India's growing dependence on LNG imports places its energy security firmly within the context of global geopolitics. The ongoing conflict in Ukraine, persistent tensions in the Middle East, and the strategic rivalry between the US and China create a volatile and unpredictable environment for energy markets. These geopolitical factors can significantly impact LNG supply chains, leading to disruptions, price fluctuations, and increased competition for resources. India's LNG import strategy must therefore account for these risks and develop mechanisms to mitigate their potential impact.

Beyond the broader geopolitical landscape, specific vulnerabilities within the LNG supply chain pose significant risks to India. The reliance on maritime transport for LNG exposes the country to potential disruptions from piracy, accidents, and geopolitical tensions in key shipping lanes like the Strait of Malacca and the Suez Canal. The concentration of LNG liquefaction facilities in certain regions further amplifies the risk of supply disruptions due to political instability, natural disasters, or other unforeseen events. Understanding these vulnerabilities is crucial for developing effective mitigation strategies.

The volatility of global LNG prices adds another layer of complexity to India's import strategy. Fluctuations in LNG prices are influenced by a multitude of factors, including geopolitical events, supply and demand dynamics, seasonal variations, and speculation in the global market. These price swings can significantly impact the affordability of LNG for India's price-sensitive power and industrial sectors, posing challenges for economic planning and competitiveness. Managing price risk through a diversified procurement strategy, including long-term contracts and strategic spot purchases, is therefore essential.

To enhance its energy security in this complex geopolitical and market environment, India needs to adopt a proactive and multi-pronged approach. This includes diversifying LNG import sources by establishing strategic partnerships with various suppliers, including Qatar, Australia, and the US. Strengthening domestic gas production can also reduce reliance on imports and enhance energy independence. Furthermore, developing robust risk management frameworks, including hedging strategies and contingency plans, can help mitigate the impact of price volatility and supply disruptions. Active participation in international energy forums and diplomatic engagement with key LNG producing and transit countries can also contribute to a more secure and stable LNG supply for India.

Infrastructure: The Keystone to India's LNG Future

India's ability to effectively utilize imported LNG and integrate it into its energy system depends critically on the adequacy and efficiency of its infrastructure. The country's current LNG infrastructure, while expanding, faces challenges in terms of capacity, utilization rates, and connectivity. The seven operational LNG terminals, with a combined capacity of 47.7 mn t/yr, exhibit varying utilization rates, with some operating near full capacity while others lag significantly. This uneven utilization highlights the need for strategic investments to optimize the existing infrastructure and address bottlenecks.

Expanding and optimizing India's LNG infrastructure requires a strategic approach that considers both current needs and future projections. This includes not only increasing the capacity of existing regasification terminals but also developing new terminals strategically located along the coastline to minimize transportation costs and improve access to different regions. Strengthening the pipeline network connecting LNG terminals to major consumption centers is also crucial for efficient distribution. Furthermore, integrating smart technologies into LNG infrastructure can enhance efficiency, optimize operations, and improve safety. Addressing regulatory hurdles and streamlining approval processes for infrastructure projects can also accelerate development and reduce costs, ultimately contributing to a more robust and efficient LNG value chain in India.

India's LNG Outlook: A Strategic Roadmap

India's growing reliance on LNG imports presents both opportunities and challenges. Successfully navigating this complex landscape requires a strategic roadmap that balances the evolving dynamics of domestic demand, the volatilities of the global LNG market, and the geopolitical risks impacting supply chains. Investing in robust and efficient infrastructure, diversifying LNG sources, and implementing effective risk management strategies are crucial for ensuring a secure and affordable LNG supply. Furthermore, aligning LNG import strategies with long-term sustainability goals by accelerating the transition to renewable energy sources will be essential for India's energy future. By adopting a holistic and forward-looking approach, India can leverage LNG as a key component of its energy mix while mitigating risks and ensuring a sustainable energy future.

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Further Reads

I. 2021-2025: Rebound and beyond – Gas 2020 – Analysis - IEA

II. LNG demand growth hinges on Asia | articles | ING Think

III. Is India’s 2030 gas consumption target feasible? | IEEFA