Global LNG market has been well-supplied in 2024, which has resulted in lower prices of the fuel since the beginning of the year. India—which is dependent on gas imports for 50 percent of its needs—has been a beneficiary of this ample supply in the market and has ramped up its consumption so far.
Increasing natural gas consumption has been a priority of the government given lower emissions of the fuel. India aims to increase the share of gas in its energy basket to 15 percent by 2030.
Moneycontrol takes a look at the factors leading to lower LNG prices and its impact on India—which is a highly price sensitive market.
What resulted in softer LNG prices in the global market?
From the highs reported in 2023 and 2022 due to the Russia- Ukraine war, global LNG prices have significantly cooled down in the current year. The drop in prices comes amid weaker-than-expected gas demand in Europe due to milder winters and high inventories in the market especially from the US.
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Spot gas prices are trading around $10 per million metric British thermal unit (mmBtu) currently compared to highs of $23 per mmBtu in early 2023. Gas prices have, however, risen since mid-April due to the geopolitical crisis in the Middle-East. Spot prices had declined to around $8- $9 mmBtu in the first quarter of 2024.
How did India respond to lower LNG prices?
Price-sensitive India has witnessed a rise in consumption of natural gas in 2024 amid lower prices of LNG. Sectors including power, fertilisers and industries ramped up intake of the fuel as prices hit three-year low due to ample supply in the market.
On account of low gas prices, the power ministry said in April that it is considering to impose a mandate on generating companies to mandatorily operate their gas-based power plants to meet the country's increasing power demand this summer.
Why has India shied away in using the cold fuel?
According to official data, total natural gas consumption in March was around 3 percent higher at 5,594 MMSCM from last year. However, consumption of gas in India has remained limited due to higher prices and difficultly to compete with other fuels such as oil and coal.
Despite the push given by the government, consumption of gas in the power sector remains low. Power sector contributes only around 13 percent of the total gas consumption in India while fertiliser, CGD and industrial sector contribute for the rest.
Where does India’s domestic production stand?
India's domestic gas production has remained steady despite efforts by the government to boost production. In March, domestic gas production rose 6.2 percent compared with the corresponding month of the previous year.
The cumulative gross production of natural gas for the financial year 2023-24 was higher by 5.8 percent from last year.
Why is it important for India to scale up gas consumption?
Natural gas is seen as a transition fuel as the world moves from coal to renewable energy sources, given that it generates less carbon than most other fossil fuels. Globally, natural gas-based power generation is commonly used as back-up for the intermittent wind and solar power.
With India moving towards its target of net-zero emissions by 2070, the Indian government is pushing for an increase of natural gas use in the country. The target is to increase the share of natural gas in the total energy basket to 15 percent from the current six to seven percent.
For the same, the government has increased focus on city gas distribution (CGD) companies to PNG connections and wide-spread CNG network. Meanwhile, the government is also working towards using LNG as a fuel in transportation.
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