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With LNG prices low, suitable policy support to raise share of Gas in India’s primary energy mix: CRISIL
Commodity Online | July 10 2019
UPDATED 14:55:37 IST

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Natural gas consumption has huge potential in India and needs policy thrust to raise its share in India’s primary energy mix to 15%, as targeted by the government, from about 6% today, credit rating agency CRISIL Research said in its latest report.

The agency estimates demand for natural gas to rise by about 55 mmscmd (million metric standard cubic metres per day) between fiscals 2020 and 2024, led by sectors such as city gas distribution, fertilisers and the industrial segment.

Domestic gas production, on the other hand, is expected to rise by around 30 mmscmd over this period.

Net-net, therefore, the reliance on liquefied natural gas (LNG), which accounted for 46% share in total gas consumption in fiscal 2019, is expected to remain elevated over the next five years. And as LNG prices are expected to remain attractive, this augurs well for India, the agency said.

“We expect LNG prices to remain subdued over the medium term. For one, global LNG balance is expected to put downward pressure on prices, with large-scale supply from USA and Australia expected to hit the market over the next 5 years,” said Vivek Sharma, Senior Director, CRISIL Infrastructure Advisory.

“More importantly, we are seeing a structural shift in LNG pricing as it gets decoupled from crude oil price and gets benchmarked to natural gas trading hubs. We believe that with rising market liquidity, gas-to-gas competition is the way forward for pricing. This will benefit India as prices become more attractive and price volatility reduces,” he said.

As LNG pricing becomes favourable, the overall ecosystem needs to be made conducive to explore full potential for gas consumption in India.

At any rate, pushing up the share of natural gas in the overall primary energy mix gains prominence as it would be a key enabler for the government’s plan to reduce greenhouse gas emissions and meet global commitments to fight climate change.

It thus becomes imperative for the government to undertake stout measures in a time-bound manner, so as to spur gas consumption, the report said.

“Implementing the Gas Trading Hub and its further development as a reference point will make pricing more transparent and attractive in the Indian context. Further, including natural gas in the GST ambit would reduce the cascading effect, thereby improving affordability. A robust build-out of the pipeline grid is another imperative and therefore relooking at the pipeline authorisation framework is critical,” said Pranav Master, Director, CRISIL Infrastructure Advisory.

“Additionally, streamlining pipeline capacity reporting will help develop short-term gas markets and in turn boost consumption,” he added.

In addition to the structural measures, necessary thrust needs to be provided to end-user sectors as well. For instance, creating a market for gas-based power plants through peaking power tenders, roundthe-clock renewable energy supply tenders with gas hybrids and development of the ancillary services market are crucial for a sustained improvement, the report said.

 

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