Why stagnant domestic natural gas production could be a challenge for India?

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The domestic production of natural gas has remained stagnant in India despite exploration and production (E&P) efforts by the government, which is now affecting the functioning of gas players in the country.

Moneycontrol takes a look at the impact of low domestic production on gas players and consumers in the country.

What is the status of domestic natural gas production?

India’s natural gas domestic production in the first six months of the financial year 2024-25 rose only by 1.6 percent compared with the previous year. The natural gas production in the country in the year till now has not been in line with domestic consumption.

The cumulative gross production of natural gas for the current financial year till September 2024 was 18,160 million metric standard cubic metre (MMSCM). Meanwhile, the cumulative consumption for the current financial year till September 2024 was higher by 11.9 percent from last year at 36,850 MMSCM.

How are the city gas distribution players impacted?

The gap between the domestic production and consumption of the transition fuel—as pegged by several organisations globally—has led the government to cut cheaper gas allocation to city gas distribution (CGD) players of the country.

On October 17, the Ministry of Petroleum and Natural Gas (MOPNG) reduced the allocation of administered price mechanism (APM) gas for compressed natural gas (CNG) to India’s CGD companies by 20 percent compared to the previous average quarterly allocation.

Amid lower domestic gas production, the CGD companies have pointed out that the availability of APM gas is declining, affecting their margins. Mahanagar Gas managing director Ashu Shinghal had told Moneycontrol in August that the supply of APM gas to the company has fallen to 60 percent in the first quarter of the financial year 2024-25 from 80-85 percent as compared to last year.

The Mumbai-based company’s bottom line was impacted in the first quarter of FY25 due to higher procurement costs.

APM gas is sold at a cheaper price to the CGD players in the country to ensure essential services such as domestic piped natural gas (PNG) and CNG receive gas at lower costs. According to the government data, APM gas is sold at $6.5 per mmBtu (million metric British thermal units) while HPHT gas costs $10.16 per mmBtu. The reduction in APM allocation would now have to be replaced by more expensive HPHT gas, or liquefied natural gas (LNG), which could force the companies to increase CNG prices for customers.

What has been the impact on gas imports?

The Indian government intends to increase the share of natural gas to 15 percent in the country’s energy basket, compared to the current six percent.

As domestic production continues to remain stagnant, the reliance on LNG has gone up. In the first six months of FY25, the cumulative LNG import was 18,975 MMSCM (million metric standard cubic metres), which was 23.1 percent higher than last year.

In September, the gross production of natural gas was 2,977 MMSCM, which was lower by 1.6 percent from last year, while gas consumption rose five percent in the month.

India is dependent on imports for 50 percent of domestic natural gas requirements. The rising gas consumption in the country could further increase the reliance on imports.

According to the International Energy Agency (IEA), India’s natural gas consumption is expected to grow by 8.5 percent in 2024 from 7 percent earlier, on account of rising demand from the power and industrial sectors.