Natural gas consumption up 1.5% on higher import prices

  • 02-May-2019
  • Natural gas consumption up 1.5% on higher import prices

India’s natural gas consumption rose barely 1.5% in 2018-19 as higher imported gas prices limited demand from the power sector and other industries, underlining the difficulty in making the cleaner fossil fuel popular in the country. 

Total gas available for sale in 2018-19 rose to 53.05 billion cubic metres (BCM) from 52.25 BCM a year earlier, according to the oil ministry data. In 2018-19, availability of domestic gas for sale rose 0.4% while import of liquefied natural gas (LNG) went up 2.6%. The share of LNG in total gas consumption in the year was 51%. 

At this rate of demand growth, it would be hard for India to achieve its goal of raising the share of natural gas in its energy mix to 15% by 2030 from the current 6%. In a bid to penetrate much of the country with gas distribution infrastructure, the downstream regulator awarded city gas licenses for 136 geographical areas in a year, which should raise piped gas coverage to 70% of the country’s population from 20% now. But some industry executives said policy push should be aimed at power sector which is a potentially heavy consumer. 

“The stagnancy in demand is mainly due to price sensitivity of customers,” said K Ravichandran, an analyst at rating agency ICRA. Power plants avoid using expensive LNG as electricity distributors prefer cheaper electricity produced from coal. This is why plant load factors at gas-based generators have been low, he added. 

Other gas-consuming industries switching to liquid fuel when LNG rates rose sharply last year also kept gas demand volatile and stagnant, Ravichandran said. Most factories have multi-fuel boilers and can easily switch to liquid fuel if that becomes economical. Unlike fuel oil, propane or coal that’s used as fuel by many industries, natural gas is not in the ambit of the goods and services tax. This means industries do not get input tax credit for gas consumed. 

Natural gas prices are mostly linked to crude oil rates, and rose sharply following a spike in the oil rates last year. But spot rates of LNG have been down sharply since the beginning of this year with rates coming down to $6 per million metric British thermal unit (mmBtu). 

The fertiliser sector, another key consumer of gas, didn’t see operational capacity expansion last year. A new facility will start functioning this year and that will likely boost gas consumption. 

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