Natural Gas Sector - Changing Landscape

LNG Outlook Event – Shell India

New Delhi

June 21, 2017

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 Table of Content

1 India’s Energy Mix

2 Market Sizing

3 Key Challenges to Market Sizing

4 Innovation and Technology

Potential Roadmap for Market

5
Evolution

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 India’s Energy Mix (1/2)
500
• Maximum share in primary energy mix 407.2
400
• Country is rapidly expanding its coal-fired 300.4

MTOE
300
Coal electricity generation capacity
200
58.1%
• Plans to almost double production to one
100
billion tonnes by 2020
0
2011 2012 2013 2014 2015

9 8.6
8.5
• 1.2% share in primary energy mix
Nuclear 8
• Insignificant contributor

MTOE
7.3
1.2% 7.5
• Will remain so in the next 10 -15 years 7

6.5
2011 2012 2013 2014 2015

20
• Share is growing fast, led by wind and solar 15.5
15

MTOE
Renewables • Government targets to increase the installed 8.8
10
4.0% capacity to 175 gigawatts in 2022
• Prices for Solar generation at all time low 5

0
2011 2012 2013 2014 2015
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Source : BP Statistical Review 2016 Document Classification: KPMG Confidential

 India’s Energy Mix (2/2)
31
• Only 4% share in primary energy mix 29.8
30
• Untapped hydro potential 29 28.1

MTOE
Hydro • Environmental concerns, resettlement & 28

4.0% 27
rehabilitation issues and land acquisition
26
problems slowing hydropower development 25
24
2011 2012 2013 2014 2015

195.0
200.0
• Huge import dominance 190.0
180.0

MTOE
• Prices volatile 170.0 163.0
Oil 160.0
27.9% • Government aims at reducing import
150.0
dependency to two-third by 2022 through 140.0
various initiatives Viz. DSF 2016, HELP etc. 2011 2012 2013 2014 2015

55.7
60
• Accounts for 6.5% share in the primary energy mix 50
45.5

• Consumption of LNG has crossed domestic gas 40

MTOE
Gas prodcution 30
6.5% 20
• Domestic Gas Price a key concern for producers 10
• Underdeveloped gas infrastructure, a major 0
2011 2012 2013 2014 2015
limitation in unlocking the huge potential of gas
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provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such 4
authority to obligate or bind any member firm. All rights reserved.

Source : BP Statistical Review 2016 Document Classification: KPMG Confidential

 Market Sizing – Historical Demand Supply
Declining domestic gas production and rising LNG dependency in India, 2006-07–2016-17

180 80.0%
68.4%
160 33.2% 70.0%
25.2% 55.5%
140 25.4% 43.9% 56.7%
60.0%
51.3%
120
34.7% 50.0%
100 33.2%
MMSCMD

29.3% 40.0%
80
140 30.0%
60 127 127
109
84 86 87 95 90 85 85 20.0%
40
20 10.0%
98 104 103 144 161 155 134 128 124 128 152
0 0.0%
2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17

Net production Total consumption Percentage of natural gas imported as compared to domestic production

• Production increased in 2009-10 (~46% y-o-y) majorly due to commissioning of NELP production
• Declining since 2011 majorly due to underperformance of major fields and closure of wells
‒ Resulting in increased dependency on LNG imports
• Gas consumption declining primarily due to:
‒ A fall in domestic gas production;
‒ Inadequate transmission and distribution infrastructure
• From 2013-14 imports have surpassed the domestic gas supply

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provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such 5
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Note: The demand numbers are for financial year Document Classification: KPMG Confidential
 Market Sizing – Future Outlook From Conventional Sources
India’s gas demand India’s gas supply (Domestic production + Potential imports)
400
400

339
350
350

300 71
300
265

MMSCMD
250
48 55 250
207 197
MMSCMD

200 40 126
30 200

150 131 30 108 90

150
85
15
68
18 42
100 100
24
55
42 139 142
30 36
50 117
50 90
44 43 49 51

0 0
2015 2020E 2025E 2030E 2015 2020E 2025E 2030E

Fertiliser Power Refinery & Petrochemical Bulk Industrial CGD Production Imports

Source: KPMG Analysis

Note: The above demand figures are price linked and are for calendar year
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provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such 6
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Market Sizing – New Applications of Natural Gas
We estimate ~100 mmscmd of additional demand creation from
new end-use applications by 2020 ~100
mmscmd

Ancillary & Peaking Power 8

Indian Railways consumes ~2.8 million MT of diesel annually growing at CAGR of 2.5%
LNG Locomotives 12

Genset market is growing at 7.5% annually and consumers

Distributed Power Generation 20 ~5 million MT of diesel

LCV/HCV and Buses consumes 26 million MT of

* LNG Vehicles 24 diesel annually growing at a CAGR of 4.11%

CHP 35 9 GW potential for CHP

0 10 20 30 40
* Assuming 30% of diesel demand converts to natural gas Potential in mmscmd
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provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such 7
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Key Challenges to Market Sizing
01 Policy
• Competitive market based pricing and lack of liquidity/markets
• Lack of policy directives for cleaner fuels
• Ancillary and peaking power pricing

02 Infrastructure
• Pancaking of tariffs
• Extant selection mechanisms – volume risks
• Access regimes and capacity allocation mechanisms

03 Fiscal
• Cost cascade effects as full set-off of tax credits are not available
under the proposed GST regime

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provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such 8
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Innovation in LNG Value Chain

Technology Maturity &

High and Direct
Huge Unlock Potential Scalability - Multi-gas ‘LNG Blue Corridors’
Positive Impact on
in Transport Segment ISO Tanks, Mini along National
Environment and
(Marine, Rail & Road) liquefaction plant, Highways
Local Health
LNGV, etc.

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provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such 9
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Digital Transformation Across Gas Value Chain
Asset lifecycle Reducing operational costs and driving Cloud Drones 3D printing
01 efficiency across wells, production facilities,
Big data Blockchain
and gas retail stations
Predictive analytics
Revenues Blockchain Internet of Things
02 Establishing innovative revenue streams
and managing variations in demand Robots Big data

Cloud Social media

Customer-Centricity Strengthening relationships with customers
Big data
03 and enhancing customer interaction Internet of Things

Drones Robots
Augmented Reality/
Workforce of the future Ensuring safety and efficiency throughout Virtual Reality
04 the value chain
Augmented Reality/
Big data
Virtual Reality
Security Ensuring safety of people and assets from
physical and cyber-attack
05

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provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such 10
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 Potential Roadmap for Market Evolution
1
Nation-wide Infrastructure

Integrated and 4 6 Capacity

City gas development Desired state
comprehensive planning of ecosystem 5 Trading
T&D network Monitoring of
• Increased gas share in the primary energy mix
Development

3 projects
2 Phase-wise bid • Well-connected national gas grid
Appropriate model for process/auction rounds
licensing and development 3 • Integrated planning and operational approach
of infrastructure
Continuous monitoring • Competitive gas markets
and review of policy
2
• Sound taxation environment
National System • Enabling regulatory framework
Operator 6
1 Hub based trading and
Institutional Framework

regional benchmark
Overarching energy policy
– Green objective 5
Various trading
3 products for
Physical gas 3
trading platform consumers Tax incentives for 6
clean technologies –
2 End-use applications Continual assessment of
Unbundling 4 regulatory framework with
structure for Trading pliable market development
mechanisms
Current state market players
2
• Lack of liquidity/markets 1 5
Increased Tax incentives for Legal strengthening of
• Lack of policy directives for cleaner fuels competition clean fuels dispute resolution
4 mechanisms
• Pancaking of tariffs Tariff setting
Markets Enablers

principles
• Extant selection mechanisms – volume 3
risks 1
Time-bound
Implementation of 2 implementation
• Access regimes and capacity allocation GST 1 Regulations for of unbundling
mechanisms Reassessment pipeline and
of regulatory CGD bidding
• Cost cascade effects framework

Markets Enablers Supporting Fiscal/Taxation Regime Regulatory Regime

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provides no services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such 11
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Thank you
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©2017 KPMG International Cooperative ("KPMG International"), a Swiss entity. Member firms of the
KPMG network of independent firms are affiliated with KPMG International. KPMG International
provides no services to clients. No member firm has any authority to obligate or bind KPMG
International or any other member firm vis-à-vis third parties, nor does KPMG International have any
such authority to obligate or bind any member firm. All rights reserved.

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