Viewpoint: India eyes strategic gas storage reserve

The Indian government is mulling building a strategic gas reserve to combat the volatility of natural gas prices and reduce its import dependence, given rising natural gas demand.

The government has appointed a committee to work on a feasibility study on the need to build a strategic gas reserve. The study will enable the government to assess the technical and cost parameters of such a project by early 2024.

Delhi is planning to use old, depleted hydrocarbon wells to build a strategic gas reserve that would cushion the volatile gas price rise witnessed in 2022 after the Russia-Ukraine war, an official from state-controlled gas distributor Gail told Argus.

India's efforts to build a strategic natural gas reserves complement its plans to build LNG storage capacity, which is part of its larger aim to expand its LNG imports and avoid a repeat of the supply shortage experienced in 2022.

The strategic gas reserve is likely to be built in phases in India's western and northeastern regions, with an initial capacity to store as much as 4bn m³ (11mn m³/d) gas. The first such facility is likely to take three to four years to build after the government's approval. The estimated cost to build such a facility is around $1bn-2bn.

Indian state-controlled companies currently hold 2bn m³ (5.4mn m³/d) of gas in pipelines and LNG storage tanks for commercial use.

India already has a strategic crude oil storage of over 5mn t, located in Vishakhapatnam in Andhra Pradesh state (1.33mn t), Mangaluru in Karnataka state (1.5mn t) and Padur (2.5 mn t) in Karnataka. Delhi has been struggling for years to build the second phase of its strategic petroleum reserves (SPR), comprising 6.5mn t at Chandikhol, 4mn t in Odisha and 2.5mn t in Padur, on a public-private partnership model.

Increasing imports

The gas storage reserve is most likely to be used for imported LNG as importers have been signing term deals, most of which are set to commence from 2026.

Imports will likely help achieve Delhi's aim to more than double the share of natural gas in its energy mix to 15pc by 2030 from 6pc currently, unless domestic production rises significantly.

India's LNG imports rose by over 11pc on the year to 20.09bn m³ during April-November 2023, while overall output was at 22.9bn m³, up by 3pc on the year, according to oil ministry data.

The rise is likely the effect of faster economic growth after the pandemic years, while much of the imports are also the result of lower LNG prices this year. India paid $0.43/m³ per cubic metre of LNG during the April-September period, compared to $0.70/m³ a year earlier, oil ministry data show.

India bought the most LNG in the April 2019-March 2020 and April 2020-March 2021 fiscal years, at 32.35bn m³ and 33.2bn m³ respectively, when prices were at $4.46/mn Btu and $5.74/mn Btu, Argus data show.

Spot LNG prices rose to an average of $26.16/mn Btu during April 2022-March 2023, resulting in a fall in imports to 26.3bn m³, when India relied almost totally on term cargoes, with little appetite for spot cargoes being offered at record high rates.

Output growth

India's rising natural gas demand has also compelled a push to increase domestic output.

A consortium of private-sector Reliance Industries (RIL) and BP is likely to produce around 30mn m³/d of gas, while the MJ field in the Krishna-Godavari basin in Andhra Pradesh will account for a third of India's current output once it reaches peak production. This is likely to meet approximately 15pc of India's gas demand, RIL has said.

ONGC, the country's biggest state-controlled producer of oil and natural gas, also aims to produce 2mn m³/d of gas at peak from the KG-D5 field over April 2023- March 2024, company officials said, adding that daily production also could reach 10mn m³/d by 2025.

But prices of domestically produced gas continued to be lower than international prices, as the government's new natural gas pricing norms have fixed the deepwater gas price at $9.96/mn Btu till March, lower by 9pc compared to current global prices. Meanwhile, domestic gas sourced from older ONGC and state-controlled Oil India-operated areas is priced at $6.50/mn Btu.

By Rituparna Ghosh