• Press Release
  • CRISIL Infrastructure Advisory
  • LNG
  • Liquefied natural gas
  • Energy
  • Natural Gas
July 10, 2019 location Mumbai

With LNG prices low, policy support key to raising share of gas in India’s energy mix

CRISIL Infrastructure Advisory believes natural gas consumption has huge potential in India and needs policythrust to raise its share in India’s primary energy mix to 15%, as targeted by the government, from about 6%today.


Demand for natural gas is estimated 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 gasconsumption in fiscal 2019, is expected to remain elevated over the next five years. And as LNG prices areexpected to remain attractive, this augurs well for India.


Says Vivek Sharma, Senior Director, CRISIL Infrastructure Advisory, “We expect LNG prices to remainsubdued over the medium term. For one, global LNG balance is expected to put downward pressure onprices, with large-scale supply from USA and Australia expected to hit the market over the next 5 years.More importantly, we are seeing a structural shift in LNG pricing as it gets decoupled from crude oil priceand gets benchmarked to natural gas trading hubs. We believe that with rising market liquidity, gas-togascompetition is the way forward for pricing. This will benefit India as prices become more attractiveand price volatility reduces.”


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


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


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


Says Pranav Master, Director, CRISIL Infrastructure Advisory, “Implementing the Gas Trading Hub andits further development as a reference point will make pricing more transparent and attractive in theIndian context. Further, including natural gas in the GST ambit would reduce the cascading effect, therebyimproving affordability. A robust build-out of the pipeline grid is another imperative and thereforerelooking at the pipeline authorisation framework is critical. Additionally, streamlining pipeline capacityreporting will help develop short-term gas markets and in turn boost consumption.”


In addition to the structural measures, necessary thrust needs to be provided to end-user sectors as well. Forinstance, creating a market for gas-based power plants through peaking power tenders, round-the-clockrenewable energy supply tenders with gas hybrids and development of the ancillary services market are crucialfor a sustained improvement.


Pushing the use of LNG in transport through regulatory support and appropriate original equipment manufacturerecosystem will drive consumption. Further, adopting satellite supply solutions using LNG to cater to unconnectedindustries can substitute use of diesel and liquefied petroleum gas.


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    CRISIL Limited
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