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September 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

 

Domestic gas prices to hover around $3.5 per mmBtu on global cues; domestic production set to increase in 2020

 

In India, gas prices are determined as per an approved pricing formula that takes into consideration the prevailing natural gas prices in international hubs i.e Henry hub, Alberta, National Balancing Point (NBP) and the price of Russian gas. CRISIL Research believes domestic gas prices would hover at ~$3.5 per million metric British thermal units (mmBtu) in fiscal 2020, given the subdued prices at various global benchmark hubs, following commissioning of new liquefaction terminals in the US, Australia and other countries.

 

Gas prices at Henry Hub averaged at ~$3.1 per mmBtu in fiscal 2019 and are hovering at ~$2.5 per mmBtu since June, 2019. We expect prices to remain subdued and range from $2.5-3.0 per mmBtu in the next two years, considering higher production from shale gas assets. Gas prices at the NBP hub will also be weighed down by the commissioning of many liquefaction terminals in the US. We expect the trend (lower gas prices) to continue due to LNG oversupply as well as range-bound increase in demand in the European market. Gas prices in Alberta and Russia are expected to remain subdued owing to the supply glut in the market.

 

Moreover, global energy prices have been under pressure since their mid-2014 highs. However, the recent global economic slowdown (since last 5-6 months) further impacted by geo-political tensions and trade wars, has exerted pressure on the reviving energy markets. Crude oil prices recovered from $48.9 per bbl in fiscal 2017 to ~$70.1 per bbl in fiscal 2019. However, slowdown in demand is restricting increase in prices amidst a production cut by the Organization of Petroleum Exporting Countries (OPEC) and supply loss from Iran and Venezuela, causing crude oil to hover at ~$65 per barrel in recent months.

 

Hence, considering the prices at various hubs and the expected subduedness in energy prices, we project domestic gas prices to range from $3.4-3.6 per mmBtu in fiscal 2020 and fiscal 2021..

 

Currently, domestic gas price stands at $3.69 per mmBtu on a gross calorific value basis for the period April-September, 2019, increasing from $3.36/mmBtu in October 2018 to in March 2019, an increase of ~10 per cent.