As international prices of liquefied natural gas (LNG) soften to $11-12 per mBtu, the International Energy Agency (IEA) has revised upwards India’s natural gas consumption during the current calendar year.

“In 2023, total natural gas consumption is expected to increase by 4 per cent thanks to a modest recovery in power sector gas use, and continuing – albeit slow – growth in the industrial and city gas sectors,” the agency said in its Q2 2023 gas market report.

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The IEA’s Q4 2022 gas market report had projected a growth of 2 per cent in India’s domestic consumption in October last year.

In January 2023 natural gas demand in India increased by 14 per cent Y-o-Y, with a significant increase in the city gas sector (up 70 per cent Y-o-Y) and the recovery of the fertiliser sector (up 13 per cent Y-o-Y), along with the power sector (up 5 per cent Y-o-Y), amid lower gas prices, the IEA report for Q2 2023 pointed out.

Demand from fertiliser sector

The fertiliser sector accounts for around 35 per cent of the natural gas demand in the country, followed by city gas distribution (CGD) at 20 per cent, and the power sector (14 per cent).

Domestic gas prices from legacy fields (administered price mechanism) have witnessed wide fluctuations, from a low of $1.79 per mBtu in 2021, to a high of $8.57 in October 2022-March 2023.

Global gas prices have been even more volatile, exacerbated by the ongoing Russia-Ukraine conflict. Spot LNG prices in Asia touched a record high of $70 per mBtu in August 2022, compared to $23.5 per mBtu during June 2022, before softening to $35 in December.

Prices impacted consumption in 2022

IEA said India’s gas consumption declined by 6 per cent in 2022 as soaring prices squeezed gas demand for power generation (down 24 per cent Y-o-Y) and refining (down 30 per cent Y-o-Y), and from the petrochemicals sector (down 32 per cent Y-o-Y).

City gas demand was broadly flat, while consumption by the fertiliser segment and other end-uses (which include agriculture, upstream operations and other industries) saw modest expansion during 2022, although not enough to compensate for steep declines in the more price-sensitive sectors of the economy.

India’s LNG imports dropped by 17 per cent Y-o-Y in 2022, the steepest fall on record and the first decline covering two consecutive years in India’s two-decade history as an LNG importer. Price-driven fuel-switching played a leading role in suppressing LNG demand, but a modest 3 per cent increase in domestic production also contributed to the decrease in LNG inflows.

The world’s third largest energy user consumed 63,907 million standard cubic meters (MSCM) of natural gas during April 2021 to March 2022.

Parikh Formula

In April, the government approved a new domestic natural gas pricing plan with the domestic gas price at 10 per cent of the monthly average of the Indian crude basket and notified monthly.

The revised structure led to a reduction in the price of compressed natural gas (CNG) by up to 10 per cent across cities and would limit material increases in the same going forward, with the government setting a ceiling price for gas produced from ONGC and OIL’s nomination blocks. It accounts for 70 per cent of India’s gas output.

Fitch Ratings said it will put prices of domestic natural gas from legacy fields to between $4 per million British thermal unit (mBtu) and $6.5 will support margins for city gas distributors (CGD), encourage the use of gas and reduce cash flow volatility for upstream producers.

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