India is the third-largest energy consumer in the world after China and the US. It is also one of the fastest growing energy consumers. Despite the share of natural gas in India’s primary energy mix remaining flat in recent years at around 6 per cent, compared to the global share of 24 per cent, the overall energy demand has been steadily rising. There have been significant shifts in demand for natural gas in specific sectors of the economy such as power, city gas distribution and fertilisers.
Given that natural gas is a cleaner source of energy than other conventional fuels, it is increasingly becoming the preferred choice of fuel globally. India is set to increase the share of natural gas in its primary energy mix from 6.7 per cent in 2021 (and 6.3 per cent in 2020) to 15 per cent by 2030.
Gas supply scenario
India’s intention to increase the share of natural gas in its primary energy mix will come with the challenges of ensuring supply. The net domestic gas production in India has witnessed a fluctuating trend from 2017-18 to 2021-22. It increased from 31,731 mmscm in 2017-18 to 33,131 mmscm in 2021-22, registering a compound annual growth rate (CAGR) of 1.09 per cent. However, during this period, it increased by 1.04 per cent to 32,058 mmscm in 2018-19 before decreasing by 5.62 per cent to 30,257 mmscm in 2019-20 and further by 8.17 per cent to 27,784 mmscm in 2020-21. In 2020-21, the segment witnessed a considerable decline in natural gas production owing to a decline in KG-D6 production and the impact of Covid-19.
Gas production increased by 19.24 per cent in 2021-22 on a year-on-year basis. The highest net production in the year was recorded in the month of October 2021, when 2,954 mmcsm of gas was produced. Of this, the onshore gas production stood at 948 mmscm, while the offshore gas production stood at 2,011 mmscm. This was closely followed by the months of August 2021 and September 2021, when the net production stood at 2,853 mmscm and 2,840 mmscm respectively. The lowest gas production in 2021-22 was recorded in February 2022, when 2,515 mmscm gas was produced.
The current domestic gas production in the country is not enough to satisfy the growing demand in the sector. The country is therefore heavily dependent on gas imports to bridge the supply-demand gap. India is the world’s fourth-largest buyer of liquefied natural gas (LNG), after Japan, South Korea and China. The LNG market in India has been witnessing strong fluctuations, mostly owing to Covid-related restrictions in the economy. LNG imports in India increased from 27,439 mmscm in 2017-18 to 31,906 mmscm in 2021-22, registering a CAGR of 3.84 per cent. Due to low production levels during 2020-21, the import dependency of the country was as high as 54.3 per cent. However, with a steady increase in production, it declined to 49.1 per cent in 2021-22 and 47.3 per cent in April 2022.
The road ahead
With the government’s focus on developing the city gas distribution (CGD) segment, it is expected that the sector will grow rapidly and outpace other sectors such as fertilisers and power to become the largest consumer of gas in the next few years. The government is working on its vision of making gas the preferred fuel and increasing its share in the primary energy mix. In addition to this, with new infrastructure such as pipelines being set up and new stations being commissioned, the CGD segment is set on a high growth trajectory. With more geographical areas coming up after the launch of the 11 and 11 A CGD bidding rounds, the consumption of natural gas is bound to increase. The government is laying the groundwork to enhance domestic gas production, complete the national gas grid and roll out the CGD network across the country faster in order to meet the growing demand.
According to ICRA, domestic gas production is expected to increase to 106 mmscmd by 2022-23 from 79 mmscmd in 2020-21. This growth will be on account of ramping up from Reliance Industries Limited-BP’s KG-D6 field (with a peak production of approximately 30 mmscmd) and the Oil and Natural Gas Corporation’s KG-98/2 field (peak production of 15 mmscmd). Looking at the increasing gas prices, it is imperative that the country increases its domestic gas production, thereby decreasing LNG imports. The draft LNG policy, released by the Ministry of Petroleum and Natural Gas, aims to increase the country’s LNG regasification capacity from 42.5 million tonnes per annum (mtpa) to 70 mtpa by 2030 and 100 mtpa by 2040. The outlook of the sector is bright, backed by the government’s focus on developing it.