A ruthless battle to gain the upper hand in the young business of importing liquefied natural gas is heating up in India, where demand for the gas to fuel thermal power plants and automobiles is surging.
The Port of Dahej in the state of Gujarat is home to India's largest LNG receiving terminal, boasting four gigantic storage tanks. It will soon include two additional tanks, for which construction has begun on an adjacent lot, following operator Petronet LNG's decision in January to boost the facility's receiving capacity 50% to 15 million tons a year.
The new tanks are slated to be completed in 2016. The project will be profitable when future demand growth is taken into consideration, says director Rajender Singh. The company will also start building another terminal in southeast India later this year.
But Petronet is facing fierce competition from within. In India, energy production and distribution is divvied up among state-backed companies. For example, one specializes in oil and gas field development, while another handles refining, and yet another is responsible for shipping. Petronet was set up as an LNG importer. But the other companies are starting to encroach on the procurement field, deeming the business too good to pass up.
Resource developer Oil and Natural Gas, known as ONGC, is considering forming an import terminal in southern India, while Gail (India) plans to procure shale gas from the U.S. These two, in fact, are Petronet shareholders, and the entry by ONGC, a behemoth with a market capitalization of 5 trillion yen ($48 billion), poses a particularly serious threat.
India's primary energy consumption, including fossil fuel and nuclear and hydraulic power, reached the equivalent of 563 million tons of oil in 2012, according to data from U.K. gas and oil giant BP. India is the world's fourth-largest consumer behind China, the U.S. and Russia, and one forecast sees consumption doubling by 2040.
But supply is falling behind, with about 10% of the country's electricity demand said to be constantly unmet.
Half of India's energy needs are satisfied by domestic coal, while oil and gas account for 30% and 10%, respectively. The government is pursuing greener energy sources, and sees demand for gas rising 20% per year through fiscal 2016.
Auto pedicabs, which serve as the primary mode of transportation for residents in New Delhi and Mumbai, sport the letters CNG -- compressed natural gas -- on their backs. These cities are promoting gas for public transportation vehicles as part of their pollution-fighting efforts.
"India's shift to LNG is set to accelerate," predicts Hiroshi Sasamata, partner at consultancy A.T. Kearney. Domestic gas production is topping out, he says, and imports from Pakistan are difficult given the tense relations between the two countries.
India is described as a typical market offering first-mover advantage, in which the initial entrant can capture 80% of the business' rewards. This means the moves that energy companies make today could lead to dominance in the LNG importing business several years down the road.