Could India become Qatar’s next large LNG customer?

by  — 13 February 2014

India’s LNG consumption is set to increase rapidly in the near future, a government-commissioned report reveals – and Qatar could ostensibly be well-positioned to capitalise on the energy needs of this fast growing country. But on further examination, Doha’s share of the subcontinent may not be as secure as it appears.

Rapid growth in India has led the state to drive reform of its future energy mix (Image Getty Images)

Natural gas may provide the Indian economy with its rapidly growing energy needs, a new report commissioned by the central government of the world’s second most populated nation, has said. The pages of the study revealed news that should stir Doha’s interest: India is targeting natural gas as a future energy source to drive long-term economic growth. The potential increase in demand could push Qatar’s liquefied natural gas (LNG) exports to even more profitable heights – already Qatar is the largest single supplier of fuel to Indian ports. 

But the report should also be considered a warning to Doha: in seeking to plan what the study terms a “viable development model driven by LNG”, a will on the part of India to strike deals with new, as-yet untapped sources of supply is revealed. This could force Qatar to cut prices over time, or even challenge its existing share of the world’s most potentially lucrative new LNG market.

Sector transformation

India is the second most populated nation on Earth, its 1.25 billion people outnumbered only by the 1.35 billion of China. The country’s energy mix has traditionally been dominated by coal for power generation, because of large indigenous sources, and oil-based sources for transport. Domestic natural gas production has been relatively modest.

A report commissioned by the central government of India revealed news that should stir Doha’s interest: India is targeting LNG as a future energy source to drive long-term economic growth.

However, the government is considering long-term reform of the energy mix. Driven by its underlying growth ambitions, which can no longer be supported by local energy sources, it is a move born out of necessity rather than desire.

“It is clear that access to abundant and economically viable energy will be critical to sustaining the momentum of this growth,” the report, commissioned by the Indian government and produced by global consultancy, the Boston Consulting Group (BCG), stated.

Such words should be good news for the globe’s LNG suppliers, particularly Qatar, which in 2012 to 2013 held a dominant 80 percent share of the Indian import market, supplying 10.9 million metric tonnes per annum. Nigeria was second with a 10 percent share, underscoring Qatar’s dominance. But the long-term transformation of a nation’s energy mix carries with it inherent uncertainties, and in this case, reform will run parallel to a global shift on the supply side. Those two factors can only mean one thing: new competition. Therefore, Doha may be forced into cutting prices, or risk seeing its share of a growing market eroded.

Lucrative opportunity

Currently, India does not receive volumes of LNG from a number of the globe’s big suppliers: Algeria, Malaysia and Indonesia, which together account for 22 percent of worldwide supply.

“Some of this can be explained on account of being a late mover in the LNG space,” according to the BCG report. “However, Indian companies need to systematically identify uncommitted capacities either in existing projects in these countries or in planned expansions, and move to broaden the supply base.”

It is this clear indication of the India’s intention to seek out new partners, rather than rely on established suppliers to fuel its growth, that should worry Doha, particularly with substantial new production capacity due online in Australia in 2017 and the United States soon to begin exports. And a further challenge may surface a little closer to home, as the report stated: “Indian companies will need to keep a close watch on developments in frontier LNG supply regions like East Africa, and ensure they are not left behind in the next round of the great LNG ‘gold rush’.”

India’s natural gas consumption is expected to double over the next 15 years, from 379 million standard cubic metres per day (MMSCMD) to 743 MMSCMD. In 2013, LNG consumption reached 128 MMSCMD. Given that the nation is already a net importer of natural gas, this means the additional supply will have to come in the shape of LNG imports – in effect this means a five-fold increase. A potential gold rush indeed, and one in which Qatar must ensure it retains a dominant stake.

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