India’s energy demand growth is not limited to oil. The world’s third-largest crude oil importer is set to become a major force in the natural gas market as its demand is expected to surge in the coming decades amid industry and population expansion.
The share of natural gas in India’s primary energy supply is currently between 6% and 8%, according to data from various government statistics and international forecasters such as the International Energy Agency (IEA) and the Statistical Review of World Energy published annually by the Energy Institute.
Small Share of Natural Gas in Power Generation
Unlike in other major economies, India’s share of gas used for power generation is smaller as the country continues to bet big on coal-fired electricity and expands renewables capacity. India has a goal to reach net-zero, but two decades later than most countries, in 2070.
Renewable capacity installations are booming, with the 200 gigawatt (GW) milestone reached in October, data from India’s Central Electricity Authority showed earlier this month. Renewable electricity generation capacity now stands at 203.18 GW, up by 13.5% compared to October 2023. Renewable energy now accounts for 46.3% of total installed capacity of 453 GW.
India targets to have a total of 500 GW power capacity from non-fossil sources by 2030.
While the country continues to boost renewable capacity installations for power generation, it will increasingly rely on natural gas for industrial production and processes, especially in fertilizers, oil refining, and petrochemicals.
Industry to Drive Gas Demand Surge
As India sees fertilizers as a critical industry for its agricultural sector, and as steelmaking and construction are booming to meet the growing economy and population, natural gas demand will continue to rise. India’s domestic production, although it has increased over the past two decades, will not be enough to meet growth in demand. So the country will have to rely on more liquefied natural gas (LNG) imports, considering that it lacks pipeline connections with major gas producers such as Russia or the Gulf petrostates.
Shell, the world’s top LNG trader, expects global LNG demand to surge by 50% by 2040, driven by higher demand from Asia, with coal-to-gas switching in China and a boost in LNG consumption to fuel economic growth in South and Southeast Asia.
In the fiscal year 2023, India imported about 20 million tons of LNG, more than half of which from Qatar, according to government data. The United Arab Emirates (UAE) and the United States were the next two big suppliers of LNG to India.
These imports are set to jump in the coming years as India is expanding its refining, petrochemicals, and fertilizer industries, and economic and population growth spur additional demand for construction, steelmaking, and gas-fueled vehicles.
India was the fastest-growing major economy in 2023, with GDP increasing by 7.8%. It is on track to become the third-largest economy in the world by 2028, the IEA said in its World Energy Outlook 2024.
Population and GDP growth, as well as a shift towards cleaner energy, are set to nearly double India’s gas consumption to 113.7 billion cubic meters (Bcm) by 2040 from 65 billion cubic meters (Bcm) in 2023, according to Rystad Energy research last month.
Near-term demand is supported by a 51% jump in domestic gas production since 2020 but this will not be enough to meet the country’s growing demand for natural gas.
“The result is that India will continue to rely heavily on imports to satisfy its future energy needs,” Rystad Energy’s analysts noted.
Rising gas demand could prompt India to move to contract more LNG production from the Middle East, according to Kaushal Ramesh, Vice President, Gas & LNG Research, at Rystad Energy.
“The geographical proximity of the two regions, combined with the substantial volume of uncontracted LNG production in the Middle East, presents an excellent opportunity for India to secure favorable terms – it’s an ideal buyer-seller relationship that could help fuel India’s needs,” Ramesh said.
India’s gas demand growth will be driven by industry. Natural gas is the input for the production of urea, key for fertilizers. India will continue to support urea production, regardless of natural gas prices, as it aims to ensure food security, Rystad says.
Then there is the refining sector, which also consumes a lot of natural gas. Indian refiners plan capacity expansions to meet rising demand for fuels and petrochemicals.
Moreover, India aims to be a refining hub in Asia as it is boosting refining capacity and expects to continue relying on fossil fuels until at least 2040.
India’s natural gas consumption is set to triple by 2050 amid industry expansion and rising oil refining, the U.S. Energy Information Administration (EIA) said earlier this year.
In 2022, India’s natural gas consumption amounted to 7.0 billion cubic feet per day (Bcf/d), with over 70% of the demand coming from the industrial sector. By 2050, India’s natural gas consumption is set to more than triple to 23.2 Bcf/d, according to EIA’s estimates.
Among India’s five consuming sectors, the industrial sector’s share of gas consumption will grow the most, rising to 80% of total consumption, followed by the transportation sector rising to 10%.
By 2050, gas consumption will surge by more than 250% for the production of basic chemicals and by more than 400% for refining, with the two industries together accounting for about 79% of India’s industrial natural gas demand in 2050, the EIA reckons.
By Tsvetana Paraskova for Oilprice.com
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