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Gas demand from households in cities and from the transportation sector in India is currently outpacing supply, which has prompted the government to mandate state-held GAIL (India) Limited to import more LNG and buy gas from difficult-to-source local gas fields.
According to a government order cited by Reuters, GAIL, a natural gas explorer and producer responsible for natural gas processing and distribution in India, will source more gas from harder-to-operate fields at a price set lower than the spot LNG prices.
“For any further requirement, GAIL will also source long-term regasified liquefied natural gas failing which spot RLNG may be sourced” to mix with gas from domestic fields, according to the order seen by Reuters.
Currently, demand in India from the transportation sector and households is around 2 million cubic meters a day (mcmd) higher than the gas allocated to those segments, Bhanu Patni, senior analyst with India Ratings and Research, a Fitch Group Company, told Reuters.
GAIL (India) Limited’s earnings from its natural-gas marketing segment are set to increase due to the recent rise in spot LNG prices to levels much higher than GAIL’s contracted LNG from the United States, Fitch Ratings said last month.
However, sustained high LNG prices are likely to slow gas consumption growth in India, Fitch Ratings warned.
“We expect natural gas consumption in India to increase by 5% in FY23 (FY22 estimate: 6.5%), lower from our previous estimate for 7% growth, as the recent sharp increase in domestic gas prices and high LNG prices – both spot and term contracts linked to oil prices – would slow the shift towards natural gas, in our view,” Fitch Ratings said.
Overall, LNG demand in Asia is weaker than previously expected due to Europe’s rush to replace Russian pipeline gas supply, which has made Europe the primary destination for LNG exporters due to the high demand and high spot prices, higher than in Asia.
By Charles Kennedy for Oilprice.com
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Charles is a writer for Oilprice.com