With major additions to global liquefied natural gas (LNG) production capacity expected to lead to a supply glut over the next few years, India will benefit as LNG or super-cooled gas prices will remain low for a long period of time. period, according to the ICRA rating agency.
“Globally, approximately 193 MMT (million metric tons) of LNG production and liquefaction capacity is slated to be added over the next four years. A significant increase in capacity amid expectations of modest demand growth in global natural gas consumption will keep LNG prices in check, benefiting India,” ICRA said in a note on Wednesday.
Liquefaction is the process of transforming natural gas into a liquid state at ultra-low temperatures. Transporting gas in the form of LNG is the most viable and is considered second only to pipeline transport. For countries like India, which are not connected to international gas supply pipelines, importing gas in this super-cooled, liquid form is the only viable option.
Global LNG prices have seen high volatility over the past two years – 2022 and 2023 – due to a combination of reasons that included the rapid recovery in global demand as the COVID-19 pandemic subsided and the impact of the Russia-Ukraine war on global markets energetic. . But with nearly 200 million tons of liquefaction capacity expected to be added globally between this year and 2028, supply constraints could be a thing of the past, at least in the short to medium term.
India, which is among the top importers of LNG, depends on imported gas to meet almost half of its domestic requirements. With indications that the global LNG market is likely to turn into a buyer’s market with additional capacity coming on stream, countries like India stand to gain by saving valuable foreign exchange.
“Global natural gas consumption is expected to grow modestly, given the shift of large natural gas consumers from the European Union, Japan and Korea to other energy sources. Amid these demand headwinds, LNG capacity growth over the next four years, which is equivalent to approximately 41% of current global LNG production capacity, is expected to result in downward pressure on global LNG prices,” said Girishkumar Kadam, Senior Vice President and Group Head, Corporate Valuations at ICRA.
Natural gas consumption in India is expected to grow by 6-8% year-on-year in 2024-25 (FY25), supported by lower LNG prices and an increase in domestic gas production, ICRA estimates.
“The share of LNG in the gas mix is projected to increase from 48% in FY2024 to 50% in FY2025. However, as domestic production is expected to start moderating from fiscal 2028 onwards, reliance on LNG would further increase as India looks to increase the share of natural gas in the energy mix,” the rating agency said .
The government has been pushing for greater consumption of natural gas in India, aiming to increase the fuel’s share of the country’s primary energy mix to 15 percent by 2030, from more than 6 percent today. The push for greater natural gas consumption, even if it leads to greater imports, is not without reason. Natural gas is far less polluting than conventional hydrocarbons such as crude oil and coal, and is typically cheaper than oil, for which India depends on imports to meet more than 85 percent of its needs.
As the country moves towards green energy and future fuels, natural gas is seen as a key transition fuel in this journey. Various sectors including city gas distribution, fertilizers, power generation and refineries and petrochemicals are considered major growth areas for natural gas demand in India.
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