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India’s Midstream Petroleum Network Grows

David Sturgess, Avi Aggarwal, Li Zhang
The TAPI pipeline network will have the capacity to deliver almost 100 million cu. ft of natural gas each day to India. Image source: Eurasian Energy Analysis, 2012

The establishment of India’s petroleum industry began with the “British Raj” period of Indian history in the mid-1800s. To exploit India’s oil fields during World War I and II, the British Crown began the country’s midstream sector—railways were constructed to connect the oil fields to trade terminals. After obtaining independence in 1947, the government began meticulously planning its oil and gas infrastructure to modernize the country and promote international trade.

Oil demand in India has grown rapidly in the past decade due to its rapidly advancing middle class: India’s middle class in 2030 is poised to overtake the population of the US in 2030. Analysts believe the oil demand is still suppressed due to a significant percentage of the country living below the poverty line: the country’s gross domestic product (GDP) was USD 2.1 trillion in 2015. Compare this with the state of California, which has a comparable GDP but only 3% of the US population. As the middle class grows and begins demanding more luxuries, India’s petroleum demands could skyrocket.

India exports almost no crude oil. In fact, the millions of barrels of oil consumed each day are met with imports—3.2 million bbl of its 4.2 million B/D consumption is produced outside of India (BP Statistical Review of World Energy, 2016) and transported via 8000 km of pipelines across the country. State-owned companies Oil and Natural Gas Corporation and India Oil Corporation control most of the pipelines and continue to invest heavily in import infrastructure and domestic exploration to replace reserves.

India has historically relied on coal for electrical power and oil for transportation. However, a national drive to improve environmental pollution is focusing on natural gas as a transitionary energy source due to its lower carbon emissions.

India’s midstream petroleum sector has a relatively small pipeline density compared to the US, UK, or China, approximately 16 times less dense (GE India Oil and Gas Operating Segments). Of the 14987 km of natural gas pipelines in India, GAIL (India) operates 11,000 km and is the premier gas transmission and marketing company in India. Operating since 1984 as a Central Public Sector Undertaking, GAIL has diversified into gas transmission, city gas transmission (compressed and piped natural gas), regasified liquefied natural gas (R-LNG), marketing, liquid petroleum gas (LPG), petrochemicals, power, plus exploration and production.

The midstream gas pipeline network has good availability to major city areas through compressed natural gas and piped natural gas. However, remote areas and some parts of major cities are reliant on LPG bottled cylinders for domestic, commercial, and industrial use. The domestic market use for LPG is primarily cooking, with cylinders being heavily subsidized by the government in order to improve affordability for poor families. A recent initiative by the Ministry of Petroleum and Natural Gas is for those who can afford the subsidy to voluntarily surrender their subsidy, or “give it up” to free up government funding for development activities.

Currently the country has a shortage of natural gas, with demand significantly outstripping what the domestic market can provide, leading to the import of R-LNG to supplement industries’ demand. The domestic market is regulated through allocation by the government to ensure early monetization of small, isolated gas fields for national oil companies and promote continued investment in exploration.

To supply the future demand, the import capacity of R-LNG is set to increase from the current 13.6 million tonnes per annum (mtpa) up to 22 mtpa by the year 2022 (BusinessWire 2016), with a target capacity of 40 mtpa. Import terminals such as the 5-mpta Dharma LNG Terminal will be operational by as early as 2020. India is finding the current oil oversupply crisis to be a blessing by capitalizing on low oil prices by securing long-term contracts for LNG imports to underpin infrastructure construction (Shiryaevskaya and Chakraborty 2016). The key industrial sectors utilizing R-LNG are fertilizer plants, refineries, and domestic use, with small supplies also used for power generation and petrochemical industries. These sectors are gas-intensive and reliant on steady gas supplies at competitive prices to export their products on the global market.

At present, all imported natural gas is R-LNG, with no cross-country border pipeline infrastructure in place. However, India recognizes the need for diversified sourcing to maintain competitive pricing on imports, and is currently participating in the construction of a massive pipeline project transporting natural gas from the Caspian Sea in Turkmenistan through Afghanistan, into Pakistan, and finally to India (named the TAPI pipeline). The TAPI network will have the capacity to deliver almost 100 million ft3 of natural gas each day to India. Construction of the 1800-km pipeline started in December 2015 and is expected to be fully operational in 2019.

India is also looking to capitalize on its vast gas hydrate resources to diversify supply. More can be read in the TWA article Gas Hydrates: An Unconventional Resource Horizon for India by Pushpendra Kumar, general manager and head of gas hydrates, KDMIPE at ONGC.

Overall, the country has a long history of midstream petroleum services that is predominantly state-owned and -operated. However, with the continued increase in its population and emergence of the middle class, the country is pushing forward into diversified sources of hydrocarbon supply, from cross-border gas pipelines to regasification import terminals. Although the long-term plan has always been to increase India’s energy independence, these advancements will have a positive impact on satisfying the energy needs in the near future. This is an exciting sector and one to keep an eye on over the next 5 years.