After Japan's 2011 nuclear disaster, demand and prices for liquefied natural gas (LNG) increased significantly as Japan imported more LNG to replace lost nuclear energy. In India as well, LNG imports grew as domestic natural gas production from the Krishna Godavari basin declined unexpectedly. This rise in LNG imports drove up the average cost of gas in India. Going forward, India will need to increasingly rely on imported LNG and secure more long-term import contracts until domestic gas production can rebound, which is not expected until 2014-2015 at the earliest.

1. A Perspective on LNG Imports in India
After a nuclear disaster in Japan on March 11, 2011, it was certain that both demand and the
prices of Liquefied Natural Gas (LNG) will increase. Japan, which was already importing the
largest chunk of LNG1, acted first by raising its share of LNG imports in the wake of fall in its
nuclear energy supplies. Increase in LNG imports was to the tune of about 7 million tons during
April to October 2011which was 17% higher than the corresponding figure of the last year 2. The
pressure in global LNG supplies was been created with sharp rise in spot prices.
Unsurprisingly given the robust energy demand reflected from ever increasing oil imports,
India’s Nuclear Energy Program remained the same. LNG, which was imported to take care of
the shortfall in demand of natural gas, was being imported more due to consistent fall in the
production of natural gas in Krishna Godavari basin (KG-D6). This has now come down to 39.8
million standard cubic metres per day (mscmd) and expected to dip further to 22.6 mscmd.
Companies which were procuring larger share of gas from domestic sources are now increasing
their share LNG imports thereby making the average cost of gas to rise. According to Rajesh
Vedvyas, Managing Director, Indraprastha Gas Limited, reliance on imported LNG has been the
main cause for rising cost of gas3.
Further, controversies surrounding Kundankulam nuclear power plant in Tamil Nadu, despite
been ready to be pumped into the grid, is one of the examples for changing the perception
towards nuclear power plant. Similar protest elsewhere will certainly favour natural gas scenario.
Hence the impact of LNG imports resulting from variation of domestic gas production has to be
seen closely.
The first visible sign of fall in production in KG-D6 basin was reported in the month of March
2011 to 50 mscmd. Then it was expected that British Petroleum (BP) would help Reliance
Industries (RIL) in coming out of this problem as it was buying 30% stake in RIL in 23 oil & gas
blocks including KG-D64. In April Ministry of Petroleum and Natural Gas ordered RIL to stop
1
93.48 billion cubic metres by the end of 2010, according to BP Statistical Review of World Energy – 2011.
3
Agarwal, Sheetal.Q&A: Rajesh Vedvyas, MD, Indraprastha Gas Ltd. 'Marginal price increase at regular intervals is
inevitableBusiness Standard 8 November 2011.
4
RIL's KG gas data foxes markets. Business Standard. 19 March 2011.

2. gas supply to the non-core sectors, but RIL stuck to allotment of gas on pro-rata basis. By the
month ending August 14, RIL’s production further dropped down to 44.8 mscmd. Government
then, planned to ramp up output by pumping 30-35 mscmd of natural gas with an investment of
$5.6 billion from new discoveries in the deep sea region and to develop common infrastructure
so as to optimize the costs5. RIL-BP too came up with a plan for developing satellite fields in
KG-D6, which may help in raising the production and deliver 10 mscmd of gas in five years and
a ‘New-Wave Strategy’ to boost KG-D6 out by exploring newer areas of KG-D6. The
production further plunged to unprecedented level of 39.8 mscmd in December 2011. And
finally the internal note of the MoPNG stated that the country is facing the natural gas shortages
and India will have to increasingly rely on the imported LNG6. In the next month government
approved RIL’s $1.5 billion KG-D6 output. So the collective efforts of RIL and the government
has been going on to raise the production of KG-D6 field, but at the same time one has to have a
close look at the LNG imports which will vary according to the developments in KG-D6 fields.
As far as LNG imports are concerned, the rippling effect of Japan’s nuclear disaster were started
to be felt and its prices started rising steeply. Japan had increased LNG imports to cover up
electricity demand from nuclear power plants. The sharp price rise in LNG was visible between
March 11 (the day disaster occurred) and April 7, 2011 with 23% rise to the tune of $11.47 per
million British thermal units (mBtu)7. As expected the situation had then became more
precarious for India in terms of LNG import. High Japanese demand started hitting the spot LNG
supplies, as 80% of its nuclear power capacity has gone offline. The LNG imports of top 10
power companies in Japan grew at 28.3% during October and November 2011, while the total
LNG import was up by 23% against a year ago. This affected the spot LNG prices which
increased from $16 per mBtu in September to $17.5 mBtu in December 20118.
To make up the shortfall in production of natural gas in India, many companies like GAIL,
Petronet LNG, and Indian Oil Corporation are interested in sourcing LNG on long term basis
from Africa. Similarly newer terminals have been planned by India Gas Solutions, (a RIL-BP
5
Watts, Himangshu and Rajeev Jayaswal. “Reliance Industries Ltd, Govt readying plan to ramp up output from KG-
D6 block”. Economic Times. 28 September 2011.
6
Airy, Anupama. “Supply crunch: govt uneasy over falling KG output”. Hindustan Times. 20 December 2011.
7
Datta, Aveek. “Imported LNG 23% dearer since Japan disaster”.Mint. 11 April 2011.
8
Kashelkar, Ramkrishna. “High Japanese appetite to hit spot LNG supply”.Economic Times.16 December 2011.

3. joint venture) and Indian Oil Corporation are in talks with Ennore Port. RIL has already entered
into two year pact in March 2011, with Hazira LNG for importing spot LNG each month9.
It is unlikely that the production would rebound in near future, till 2014-15, as told by
ShashiMukundan, BP India, Head and that too if RIL-BP gets right approval in right sequence10.
Also the prices of natural gas is not going to come down till the gas production increases
substantially, either in existing fields or in new frontiers of deep sea or a with the start of shale
gas production. India would have to secure more long terms LNG contracts with new gas
producing nations coupled with favourable government policies not only make this scenario
favorable but also to promote another means like energy efficiency, conventional sources like
solar energy, wind power, etc. and revisit and reframe its integrated energy policy.
References
Koyama, Ken. "A Japanese Perspective on the International Energy Landscape (72)." Special
Bulletin. 2012.
Shigeru Suehiro, Kengo Suzuki, Toshiaki Hachiuma, Takayuki Yoshioka. "Short-Term Energy
Supply / Demand Outlook: Analysis on Scenario through FY2012." 2012.
9
Srivastava, Shuchi. “RIL-BP in talks to buy stake in LNG import terminal”.Economic Times.17 February 2012.
10
“BP wants 3x hike in KG-D6 LNG price”. The Financial Express.27 February 2012.