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Council on Energy, Environment and Water Integrated | International | Independent
Issue Brief

Small-scale LNG for Expanding Natural Gas Access in India

Sabarish Elango, Hemant Mallya
April 2021 | Industrial Sustainability & Competitiveness

Suggested Citation: Elango, Sabarish and Hemant Mallya. 2021. Small-Scale LNG for Expanding Natural Gas Access in India. New Delhi: Council on Energy, Environment and Water.

Overview

This issue brief discusses the potential for the growth of Small-Scale Liquefied Natural Gas (ssLNG) in India as the country moves towards increasing the share of natural gas in its energy mix to 15 per cent within a decade. Small-scale LNG can provide natural gas access to consumers without pipeline connections, or to those who operate outside areas of proposed city gas distribution network coverage. This study calculates the delivered price of ssLNG and finds that the fuel could be primarily price-competitive with diesel and liquefied petroleum gas (LPG) used in industry, but could also compete with certain grades of furnace oil, pet coke and piped natural gas in certain locations. It makes a series of recommendations to aid the growth of ssLNG, whose limited market penetration in India is exacerbated by a lack of awareness amongst end users of the ssLNG option, limited ssLNG infrastructure growth, and policy support.

Key Findings

  • Small-scale LNG is a nascent industry with the potential to help improve the low share of natural gas (5.7 per cent in 2018) in India’s primary energy supply. It is transported in containers by road or rail (or in waterways) from LNG import terminals and is re-gasified at consumer sites. (See figure below.)
  • Since ssLNG does not rely on transmission pipelines, it can provide natural gas access for customers who are yet to receive pipeline connections or operate outside areas of proposed city gas distribution network (CGD) coverage.
  • Small-scale LNG is advantageous for consumers who are unable to procure gas at economical prices from CGDs. It could serve users with fluctuating needs – such as large construction sites, mines and quarries – and will be essential for supplying natural gas to the many LNG vehicle refuelling stations being planned across India.
  • Challenges associated with ssLNG include the possibility of transport disruptions, the limited volume of gas that can be supplied, and the costs of retrofitting or re-engineering equipment. These issues can be addressed by sound system design, resource management and policy support.

Small-scale LNG systems use road, rail, or waterways instead of transmission pipelines

Small-scale LNG systems use road, rail, or waterways instead of transmission pipelines

Source: Authors’ analysis

  • Small-scale LNG could be delivered at prices competitive with diesel and LPG used in industry, as well as some grades of petcoke, furnace oil, and even piped natural gas at some locations.
  • Considering a one-way distance of 200 km and the 2017-18 average LNG import price, the delivered price of ssLNG is estimated at USD 11.11 (INR 815) per million British thermal units (mmBtu). For comparison, the average industrial prices of diesel and LPG in the same year are USD 24.04 (INR 1,764)/mmBtu and USD 16.62 (INR 1,219)/mmBtu, respectively.
  • For a one-way distance of 1,000 km (and using the same import price), the delivered price of ssLNG is estimated to be USD 11.98 (INR 843)/mmBtu.
  • The largest contributors to the delivered price of ssLNG are truck loading charges, transport costs and the Value-Added Tax (VAT) levied by states.
  • Lowering VAT can have a significant impact on the delivered price. It currently varies greatly between states operating LNG terminals. Reducing it to 3 per cent (as in Maharashtra) from 14.5 per cent (as in Kerala) could reduce the delivered price of natural gas by up to 8-10 per cent.
  • The figure below compares the range of delivered prices of ssLNG with those of several other fuels, including piped natural gas (PNG).

The delivered price of ssLNG compares favourably with several other fuels

The delivered price of ssLNG compares favourably with several other fuels

Source: Authors’ analysis
Note 1: Prices for states in proximity to terminals - Tamil Nadu, Kerala, Andhra Pradesh, Telangana, Karnataka, Maharashtra, Odisha, Jharkhand, Chhattisgarh, West Bengal, Gujarat, and Rajasthan
Note 2: 10th and 90th percentile of prices considered to remove outliers.
Note 3: 2017-18 average LNG import price considered for ssLNG range due to lack of data on individual import cargoes

Key Recommendations

  • The Ministry of Petroleum and Natural Gas should issue a public note to clarify that the infrastructure and marketing exclusivity of CGDs on their networks does not prevent ssLNG providers from operating in the same areas.
  • The Petroleum and Explosives Safety Organisation should approve the ISO 1496/3 cryogenic tank design (to facilitate the intermodal transport of ssLNG) as well as the transport of such containers on railway wagons.
  • The Indian Railways should develop specific railway tariffs for LNG transport and provide the necessary infrastructural support to haul LNG freight containers.
  • States can reduce VAT on natural gas consumption for small consumers to improve natural gas offtake and minimise air pollution from industrial clusters.
  • The Sagarmala initiative should promote the use of natural gas as a fuel for inland and coastal waterways transport and utilise ssLNG to support the natural gas fueling stations along the waterway.

As a scalable, flexible, price-competitive fuel alternative, small-scale LNG could contribute significantly to India’s plans to achieve a 15% share for natural gas in its primary energy mix by 2030.

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