Why is natural gas consumption in India likely to decline in coming months?

Natural gas infrastructure

India reported record-high natural gas consumption in recent months amid high demand from the power sector during the summer.

However, with the onset of monsoons, gas demand in India is expected to decline from the peak witnessed in April to June—the peak summer months.

Moneycontrol takes a look at gas demand trends in recent months and the expectations going forward.

What led to the recent rise in consumption?

In recent months, majorly the peak summer months, the gas demand has significantly increased primarily due to higher power demand. On April 13, the government asked gas-based power plants to run at full capacity under Section 11 of the Electricity Act, 2003.

Under the Act, the government can ask power generating companies to operate and maintain output in accordance with directions given under extraordinary circumstances—in this case, when electricity demand far surpasses supply.

The government order expired on June 30.

India’s natural gas consumption climbed by seven percent year-on-year in June amid higher demand for the cold fuel in the summer months. In June, India consumed 5,594 MMSCM (million metric standard cubic metre) of natural gas, which was 7.1 percent higher than the previous year, showed oil ministry data.

Why is gas consumption expected to decline in the coming months?

With the onset of monsoons, gas demand is expected to slow down on account of lesser demand from the power plants. While the government’s order for the gas-based plants expired in June, the demand is expected to subside in the months starting July.

However, the government has also been working on improving the gas infrastructure in the country to ramp up the overall consumption of India, a move to achieve net-zero emissions target. The government has been focused on increasing domestic piped natural gas (PNG) connections as well as higher industrial use.

Can it impact prices?

Traditionally, prices are expected to decline with lower demand from nations. India’s LNG (liquefied natural gas) imports, which were 11.3 percent higher in June from the previous year at 2,648 MMSCM, are predicted to come down in the coming months.

Gas prices, however, are majorly determined by geopolitical tensions in the world and inventory levels in Europe.

India’s gas importers including GAIL (India) Ltd and city gas distribution (CGD) companies such as Indraprastha Gas Ltd (IGL) and Mahanagar Gas Ltd (MGL) would be the key beneficiaries of lower gas prices.

What is the government’s target?

The government aims to increase the share of natural gas in India’s total energy mix to 15 percent by 2030 from the current 6.7 percent. The target has been set by the government in line with the country’s pledge to become net-zero emission nation by 2070. Natural gas has been pegged as a “transition fuel” by several industry players and government officials.

To increase consumption, the government has been promoting domestic piped natural gas (PNG) and compressed natural gas (CNG) for transport. Meanwhile, the fertiliser and power sectors are also big natural gas consumers in India.