premium
  • CRISIL Research
  • Report
  • Premium
  • Oil Gas & Consumable Fuels
  • Natural Gas
  • Renewable Energy Sources
March 01, 2019

Sector Report: Natural Gas

This report is available to users in India for ₹40,000 + applicable taxes

 

Table of Contents

 

  • Summary
  • Overall
  • Fertiliser
  • Power
  • City Gas distribution
  • Petrochemicals & Refineries
  • Domestic supply
  • Liquefied Natural Gas (LNG)
  • Long-term outlook
  • Investments

 

Summary

 

Production to rise this 2019; domestic gas prices to hover around $3.2 per mmbtu on global cues

 

In India gas prices are determined as per an approved pricing formula that takes into consideration the prevailing natural gas prices in international hubs. CRISIL Research believes gas prices would touch $3.2 per MMBTU (million metric British thermal units) this fiscal, given the increased prices at various global benchmark hubs. However, in the medium term, prices would range at $3.2-3.5 per MMBTU.

 

Global energy prices have been under pressure since their mid-2014 highs. The price of the primary competing fuel for natural gas, crude oil, plummeted from $99 per barrel (dated Brent) in 2014 to just $34 per barrel in January 2016. However, with the United States imposing sanctions against Iran, unrest in Libya and Nigeria, and falling crude supply from Venezuela, we expect crude prices to revive. Crude prices would likely move upward and remain at ~$74 this fiscal with a stable medium-term price outlook.

 

The gas demand increment from the European market has remained range-bound, given the increasing penetration of solar and wind energy and the availability of cheaper coal. However, gas demand is expected to increase in the medium term as developed European nations plan to move away from coal and nuclear sources.

 

With the price of domestic gas at $3.06 per MMBTU from April-September, 2018, the government increased the price in the latest half-yearly price revision. Thus, the price for October 2018 to March 2019 has been raised to $3.36/MMBTU on a gross calorific value basis. Outlook on domestic gas price

 

We expect spot LNG prices to increase to $8.5-9 per MMBTU over the next two years. With increasing LNG demand, prices would remain over $8 per MMBTU in the shoulder months (approximately March-September) and increase to $10-11 per MMBTU during the peak seasons (approximately October to February). Further, we expect market to become tight beyond fiscal 2022 in the absence of sufficient projects under the pre-final investment decision stage.