Anne-Sophie is head of gas analysis at BP. She has been working in the energy industry for over 15 years with a particular focus on the gas industry. Previously, she was a research fellow at KAPSARC. She has also managed research on global gas markets at the International Energy Agency, and has worked at IHS CERA.
The present situation in the LNG market should be seen as a “crossroads or a cliff” for the industry. The LNG industry has not been static over the past 5 decades and has already experienced many changes, but still the model of long-term contracts prevails and the majority of LNG is still bought at oil-indexed gas prices. There have however been considerable changes: an increase in short-term trading of LNG, buyer contractual flexibility and FOB contracts which have lead to around a quarter of the LNG is being traded under spot and short-term contracts, with aggregators play a far more significant role. All these factors have influenced project business structures.
The industry has now embarked on a period of further change, with over 180 bcm of new LNG export capacity under construction at a time when the assumed rapid LNG demand growth in Asia appears to be slowing. The absorption of this new supply will affect, not only trade-flow patterns, but also pricing dynamics, competition with other gas supply channels and (in the power sector) potentially other fuels. Key to this change is US LNG, with buyers becoming more selective about what they want and what terms they are ready to accept. Sellers however are facing high costs and are reluctant to abandon a business model in which they have confidence. Oil indexation is under further attack with US LNG selling at HH indexed (plus costs) prices and other sellers and buyers have been pressured to adopt different pricing policies and secure more flexibility in the LNG contracts.
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Indian policymakers have stressed the role and relevance of natural gas in India’s overall energy mix in the 21st century but expectations of its share have been scaled back. For example, the Hydrocarbon Vision 2025, released in 1999, projected the share of gas would reach 20 percent of the primary energy mix by 2025, while India’s current vision puts this target at 15 percent by 2030. Now, however, India’s climate change pledge at the United Nations Conference of Parties 21 (COP21) is set to reverse this with policies to promote gas in industry and transportation as well as its complementary role in achieving ambitious renewable energy targets in the long term.
Despite previous reform measures, prices for the greater part of India’s gas supplies are still government controlled and set arbitrarily rather than determined by market forces. This leads to affordability issues – the number one challenge in Indian energy policy.
Indexing Indian upstream gas prices with international markets with different dynamics may not be as effective as using opportunity costs linked to liquefied natural gas (LNG) import parities or weighted average of fuel oil and coal in bringing prices closer to the market’s ability to afford them. But the delivered cost of gas includes taxes that make its use uneconomical in India for power generators and other users.
‘Postage stamp’ transportation pricing could introduce simplicity and encourage more homogeneous economic growth and market development in the short term, although the resulting long-term distortions would have to be addressed in the future.
Power and fertilizer manufacturing have remained the country’s two anchor gas-consuming sectors. Lower domestic gas production than expected and higher international LNG prices have rendered the use of gas uneconomical for power generation. The growth of a gas-based economy would require expansion to industry, transport, and households.
Progress has been hampered by jurisdictional conflicts between multiple regulators. This can be streamlined by strengthening the role of the Petroleum and Natural Gas Regulatory Board as a market operator in the midstream/downstream segment and assigning greater upstream regulating power to the Directorate General of Hydrocarbons.
Gas pipelines are currently limited to regions where domestic gas production and LNG import terminals are located. Realizing the vision of a gas-based economy in India will require a clear roadmap and coherent planning approach.
Natural gas resources in Tanzania and Mozambique have emerged as a new source of gas supply. While they are poised for export to global gas markets, they can also provide a key source of energy to the rest of Eastern Africa (defined in this paper to include Burundi, Ethiopia, Kenya, Malawi, Mozambique, Rwanda, South Africa, Tanzania, and Uganda), where millions of inhabitants are currently living without access to electricity and clean cooking. Natural gas could also potentially be a driver for industrialization and economic growth. But before delving into the potential gas demand and opportunities for gas utilization in the region, it is important to take a step back to analyze the current energy picture in Eastern Africa and look into the social and development plans in place in the region. Despite large natural resource potential across the region of Eastern Africa (except South Africa), low electricity access and energy access rates have hampered economic growth and increased dependency on traditional biomass. This scoping study investigates energy access issues in the residential, industrial and transport sectors.