India Must Build a Strategic Gas Reserve to Mitigate Future Supply Disruptions

India's Gas Market: Exposure to Global Volatility and the Need for Resilience

Key Highlights

• India's natural gas demand is projected to reach 290-300 million standard cubic meters per day (MMSCMD) by 2030, with LNG imports expected to form a larger part of the supply mix, potentially reaching 180-200 MMSCMD by the end of the decade.
• The country's reliance on imported gas exposes it to global price volatility, with Asian spot LNG prices experiencing sharp swings in recent years.
• India's LNG sourcing is concentrated in the Middle East, increasing vulnerability to disruptions affecting shipping routes through the Persian Gulf and the Strait of Hormuz.

Challenges in India's Gas Ecosystem

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• India's natural gas demand is rising, driven by expanding demand from fertiliser production, city gas distribution networks, industrial users, petrochemicals, and gas-based power generation.
• The country's gas market lacks the resilience and flexibility required to absorb sudden global supply shocks, with limited storage capacity and a high dependence on imported gas.
• Geopolitical tensions in West Asia can immediately tighten global LNG supply and amplify price risks across importing markets, impacting India's domestic industries and consumers.

Structural Gap in India's Gas Ecosystem

• India's LNG storage capacity is limited, with around 22-24 storage tanks across regasification terminals, providing an estimated storage capacity of 2-2.5 billion cubic meters (BCM), representing only about 10-12 days of national gas consumption.
• This buffer is relatively small compared to major gas-importing economies, which treat storage as a central pillar of energy security.

Lessons from Global Gas Markets

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• Major gas-importing economies, such as the European Union and the United States, maintain significant storage capacities to ensure energy security and market flexibility.
• Storage infrastructure serves several functions, including seasonal demand balancing, emergency supply security, commercial trading, and market flexibility.
• Traders typically inject gas into storage when prices are low and withdraw it when demand rises, making such operations economically viable.

Building India's Strategic Gas Buffer

• India should create a strategic gas buffer, similar to its Strategic Petroleum Reserves (SPR) for crude oil, to ensure uninterrupted supply during demand surges or supply disruptions.
• A well-stocked gas storage buffer would provide India with the flexibility to absorb sudden global supply shocks and reduce its dependence on imported gas.
• This would also enable India to take advantage of seasonal spreads and commercial trading opportunities in the global gas market.