India’s natural gas consumption is expected to decline by 1.5 per cent in the current calendar year as high prices are adversely impacting the demand for the key commodity used by fertiliser manufacturers and city gas distribution (CGD) entities, among others.

The world’s third largest energy user consumed 63,907 million standard cubic meters (MSCM) of natural gas in FY22.

Total gas consumption in 2022 is now projected to drop by 1.5 per cent Y-o-Y. Total consumption in 2023 is expected to increase by 2 per cent thanks to growing demand in the industrial and city gas segments,” the International Energy Agency (IEA) said in a report.

High international gas prices have already impacted demand across sectors. The IEA report reveals that consumption dropped by nearly 4 per cent Y-o-Y during January–August 2022 as high prices for both imported LNG and domestic gas squeezed demand in the more price-sensitive sectors of the economy.

“Gas use for power generation (down 28 per cent Y-o-Y), refining (down 29 per cent Y-o-Y) and chemical production (down 23 per cent Y-o-Y) suffered the steepest declines in the first eight months of 2022,” it added.

These were only partially offset by modest increases in the fertiliser, CGD and other end-use segments (which include agriculture, upstream operations and other industries).

India’s LNG imports were down by 14 per cent Y-o-Y during the January to August 2022 period, as rising domestic production (up by 5 per cent Y-o-Y in the first eight months of 2022) and widespread fuel switching away from gas conspired to decimate LNG demand, the IEA said.

Demand destruction

The government on Friday revised the price of domestic natural gas by 40 per cent to $8.57 per mBtu, for the second half of FY23. Analysts expect this to impact demand.

On demand destruction, an official with a CGD company said an increase in gas prices for priority segments—CNG (Transportation) and PNG (Domestic)—can definitely materially impact the customer value proposition and thus affect new customers moving to gas from alternate fuels like petrol, diesel, and LPG.

“High prices will affect new customers, but existing priority segment customers using CNG or PNG may not immediately move to alternate fuels. RLNG prices are expected to normalize from mid-2024 onwards. CGD entities may need to enter into long-term gas supply agreements to ensure reasonable cost of gas in the interim,” the official explained.

Floating storage and regasification units (FSRUs)

The IEA report pointed out that rising demand in Europe has drawn away not only flexible LNG volumes from Asia but also the limited number of FSRU vessels available for hire in the foreseeable future. As of mid-2022, at least 24 FSRU terminals were actively being developed across South and Southeast Asia.

“Even projects with firm FSRUs can see their vessel commitments withdrawn. Hoegh LNG, for example, has recently terminated its 10-year FSRU charter with the much-delayed Jaigarh LNG project in India, and is now expected to redeploy the vessel to a new European FSRU terminal later this year,” IEA said.