According to ratings agency ICRA, a significant addition to global liquefied natural gas (LNG) production capacity is expected to create a supply glut over the next few years, meaning prices of LNG (super-chilled gas) are likely to remain low for an extended period, which would benefit India.
“Globally, around 193 million tonnes of LNG production and liquefaction capacity is set to be added over the next four years. The significant capacity additions, coming at a time when global natural gas consumption demand is expected to grow modestly, will keep LNG prices in check, benefiting India,” ICRA said in a note on Wednesday.
Liquefaction is the process of converting natural gas into a liquid at cryogenic temperatures. Transporting gas as LNG is considered the most feasible option, second only to transportation by pipeline. For countries such as India that are not connected to international gas supply pipelines, importing gas in this cryogenic liquid form is the only viable option.
Global LNG prices have seen significant fluctuations over the past few years (2022 and 2023) due to a confluence of reasons, including the rapid recovery of global demand following the end of the COVID-19 pandemic and the impact of the Russia-Ukraine war on global energy markets. However, with nearly 200 million tonnes of liquefaction capacity expected to be added globally between this year and 2028, supply constraints may become a thing of the past, at least in the short to medium term.
India, one of the major importers of LNG, relies on imported gas for nearly half of its domestic demand. The global LNG market is likely to turn into a buyer’s market as additional production capacities come on stream, with countries like India standing to benefit by saving precious foreign exchange.
“Global natural gas consumption is expected to grow modestly given that major natural gas consuming countries – the European Union, Japan and South Korea – are focusing on other energy sources. Amid these demand headwinds, LNG capacity additions over the next four years, equivalent to about 41% of the current global LNG capacity, are expected to exert downward pressure on global LNG prices,” said Girishkumar Kadam, Senior Vice President and Group Head, Corporate Ratings, ICRA.
India’s natural gas consumption is expected to grow 6-8 percent year-on-year in fiscal year 2024-25 (FY25), supported by lower LNG prices and rising domestic gas production, according to ICRA estimates.
“The share of LNG in the natural gas mix is ​​projected to increase to 50% in FY2025 from 48% in FY2024. However, with domestic production expected to start slowing from FY2028 onwards, reliance on LNG will increase further as India looks to increase the share of natural gas in its energy mix,” the rating agency said.
The Indian government is pushing to increase domestic natural gas consumption, aiming to increase the share of natural gas in the country’s primary energy mix to 15% by 2030 from just over 6% currently. The push to increase natural gas consumption, even if it leads to increased imports, is not without reason. Natural gas is much less polluting than traditional hydrocarbons such as crude oil and coal, and is typically cheaper than oil. India imports more than 85% of its needs.
As India moves towards green energy and fuels of the future, natural gas is seen as a key fuel in the transition process.Various sectors such as city gas distribution, fertilizers, power generation, refineries and petrochemicals are seen as major growth areas for natural gas demand in India.
#India #stands #benefit #global #LNG #market #heads #oversupply #prices #ICRA