Liquefied Natural Gas and Energy Diplomacy

Context: The recent state visit of Qatar’s Amir Sheikh Tamim bin Hamad Al-Tjani to India saw a target to double the bilateral trade between the countries by 2030. Central to achieving the target is India’s import of Liquified Natural Gas (LNG) from Qatar. 

About Liquefied Natural Gas: 

• Liquefied Natural Gas (LNG) is a natural gas that has been cooled to about -162 degree celsius to convert into liquid state. This process significantly reduces its volume by 600 times.
• LNG is composed of methane (as predominant component), small amounts of ethane, propane and other hydrocarbons. 

LNG Production Process: 

1. Gas extraction: Natural gas is extracted from underground reservoirs.
2. Gas processing: Removing impurities like water, carbon dioxide and sulfur.
3. Liquefaction: The gas is cooled to -162 degree celsius, turning gas into liquid.
4. Storage and transportation: LNG is stored in isolated tanks and transported using specialised carriers. 
5. Regasification: At the destination, LNG is heated and converted back to the gas for distribution. This is done using ‘heat transfer fluid’.

• Uses of LNG: 
  • Power generation using gas-fired power plants to generate electricity. E.g., Hazira and Pipavav power plants.
  • Transportation: LNG is used as a fuel for ships, trucks and buses.
  • Industrial use in sectors like manufacturing and refining, as LNG is a cleaner-burning alternative to coal and oil.

Difference between LPG, CNG and LNG

	Liquified Petroleum Gas (LPG)	Compressed Natural Gas (CNG)	Liquefied Natural Gas (LNG)
Components	Propane and Butane	Mainly methane	Mainly Methane
Source	Derived from crude oil refining.	Extracted from natural gas fields.	Extracted from Natural Gas fields.
Energy Density	Higher than CNG but lower than LNG	Lower than LPG	Highest per unit volume
Environmental impact	Produces carbon dioxide but less than diesel.	Lower emission than LPG and petrol	Cleanest burning fossil fuel.

India and LNG

• The share of Natural gas (including LNG) in India's energy basket of India is about 6%, which is lower than the global average. 
• Expected LNG demand rise in India: 
  • To promote clean energy transition, the government has set an ambitious target to increase the share of natural gas in the country's primary energy mix to 15% by 2030, from the present level of about 6%.
    • Only 54% of CO2 is emitted in producing electricity from Natural Gas as compared to what is emitted in producing the same amount of electricity from coal. 
    • Natural gas is seen as a key transition fuel in India’s journey towards green energy and future fuels. However, there is high import dependence on Natural gas (50% of the total gas consumed is imported).
  • Aligns with India’s climate commitments under the Paris Agreement and net-zero emission goals.
    • Reducing emissions intensity of GDP by 45% by 2030, compared to 2005 levels. 
    • Achieving the target of net zero emissions by 2070. 
• Government Initiatives for LNG expansion: 
  • To promote the usage and distribution of Liquefied Natural Gas (LNG), the Government has put LNG imports under Open General Licensing (OGL) category. 
    • India imports LNG from Qatar, USA, UAE and Angola, thus diversifying its imports and reducing dependency on one supplier. 
  • Urja Ganga pipeline aims to expand the natural gas grid and promote cleaner energy solutions, ensuring efficient natural gas (including LNG) distribution. 
  • Establishment of LNG infrastructure including LNG terminals under 100% FDI (automatic route).

LNG and Energy Diplomacy

• Tool for trade: India and Qatar’s trade is dominated by the LNG imports by India.
  • LNG imports consist of 60% India-Qatar trade by value.
  • Qatar accounts for 40% of India’s total LNG imports. 
• Enhances bargaining power: 
  • India is emerging as one of the biggest markets for LNG. Both the USA and Qatar have interests in tapping the Indian market. 
  • The situation provides India with an opportunity to leverage it as a bargaining of interests. E.g., India can leverage this to bargain habitable and humane conditions for Indian labour in Qatar for the exchange of natural gas. 

Also Read: India Qatar elevate ties to Strategic Partnership 

Challenges to transition to a gas-based economy

India has set an ambitious target of increasing the share of natural gas in its energy basket from 6% to 15% by 2030. However, India faces following challenges in becoming a gas-based economy:

• Insignificant domestic gas production, which has further shrunken over the past few years.
• Inadequate gas-pipeline infrastructure and regional imbalance. E.g., Pipelines remain significantly low in central, southern and eastern India.
• Limited market for natural gas due to a small number of producers (largely state players), shippers and limited consumers, and lacking liquidity and transparency.
• Lack of Non-discriminatory/open access for private sectors to gas-pipeline networks.
• Affordability issues as prices for India’s gas supplies (majorly) are government-controlled and set arbitrarily rather than market-determined.
• Lack of an integrated Energy ministry and multiple departments governing the fuel sector causes lack of coordination, disconnect in policymaking, and incoherence in implementation.

Way Forward

• Expanding pipeline infrastructure by targeting regional markets with the biggest capacity gap.
• Unified and integrated ministry to fix accountability and reform energy governance structure.
• Independent System Operator in gas markets to manage gas-grid collaboratively, promote efficiency, and for neutral allocation of pipeline usage.
• Inclusion of natural gas under GST for better pricing, boosting trade through gas markets.
• Rationalisation of gas pipeline tariffs or adopting single-zone tariff will promote affordability by reducing transportation costs and attract investments in gas-infrastructure.
• Deregulation of pricing for domestically produced gas can provide freedom to price and market domestic gas and in turn boost domestic production.
• Strategic Energy agreement with energy-rich countries for energy security. E.g., Investments in Russian-Far East.
• Import diversification and Alliance with major importing countries like Japan for better-negotiating power against Asian premium.
• Expedite gas-pipeline projects. E.g., TAPI.