Higher domestic gas production to keep LNG imports range-bound for two years

India’s liquefied natural gas (LNG) imports are expected to remain range-bound for the next two years, beginning FY25, on account of growing production of natural gas in the country, ratings agency CareEdge said.

India is envisaged to have a robust demand for natural gas from all the major consumption segments such as fertilisers, city gas distribution (CGD), power, refineries and petrochemicals.

With imported gas prices normalising around $10-$12 per million British thermal units (mBtu) by FY23-end and remaining range bound in FY24, gas consumption has again started its upward trajectory in 9M FY24 and CareEdge Ratings expects India to record its highest-ever gas consumption annually in FY24.

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On the back of limited domestic natural gas production, India historically had a high dependence on imported gas. However, during the last three years ending FY23, gas imports declined mainly due to improved domestic gas production and a rise in imported gas prices.

“Going forward, gas imports are expected to increase at a moderate pace in spite of expected growth in domestic production because consumption of natural gas is expected to outpace domestic production. Still, imports as a percentage of total consumption are expected to remain largely range-bound during the next two years, up to FY26,” CareEdge said.

After hitting a high of 92 million standard cubic meters per day (MSCMD) in FY20, LNG imports declined consistently hitting 73 MSCMD in FY24. CareEdge expects imports to hit 82 MSCMD each in FY24 and FY25. It also projects inbound shipments to reach 96 MSCMD in FY26.

With the rise in domestic natural gas production, India’s dependency on imported LNG, which stood at 53 per cent of total consumption in FY21, has gradually declined over the last three years and is expected to remain around 45 per cent by FY26.

• Also read: GAIL to set up LNG filling stations along NHs; to invest ₹650 crore

Gas consumption

India’s natural gas consumption, which grew consistently till FY20 due to the government’s push on clean fuels, declined in FY21 on account of the Covid-19 pandemic.

Consumption accelerated again in FY22, but the sudden outbreak of war between Russia and Ukraine in February 2022 led to a sharp increase in natural gas prices in FY23, impacting the critical commodity’s cost competitiveness against alternate fuels.

Natural gas consumption rose from 153 MSCMD in FY17 to 175 MSCMD in FY20, after which it declined to 167 MSCMD in the next fiscal year. Demand again rose to 175 MSCMD in FY22, but again fell to 167 MSCMD in FY23.

Consumption is expected to be at 182 MSCMD, 196 MSCMD and 212 MSCMD in FY24, FY25 and FY26, respectively, as per CareEdge.

“Going forward, with imported LNG prices expected to remain range-bound, growth in domestic natural gas production and sizeable demand from key user industries, natural gas consumption is slated to grow significantly in the medium term,” it has projected.

Higher production

Domestic natural gas production was on a declining trend till FY21 on the back of depleting production from existing fields, with no major discoveries coming on-stream. However, due to new gas discoveries in a few off-shore fields coming on stream, domestic natural gas production again started improving from FY22.

“Going forward also, we expect domestic gas production to improve in the medium term on the back of production ramp-up from discoveries of the recent past along with sizeable new production expected to come on stream in FY25,” CareEdge said.

The higher demand for natural gas in the country is also expected to be supported by sizeable growth in domestic gas production wherein nearly 30 MSCMD of new capacity has gradually come on-stream over the last three years and another around 15 MSCMD of production is expected to come on-stream during FY25, it added.

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