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May 04, 2018

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
  • Short-term outlook

 

Summary

 

Production to rise in fiscal 2018; domestic gas prices to stay below $3 per mmbtu onglobal cues

 

Gas prices in India are determined based on natural gas prices prevailingat the international hubs, as per an approved pricing formula. CRISIL Researchbelieves gas prices will remain under pressure at about $2.6-2.9 per mmbtu (millionmetric British thermal units) in fiscal 2019, given the oversupply in the global LNGmarket.

 

Global energy prices have been under pressure since their mid-2014 highs. The primarycompeting fuel for natural gas, crude oil, saw its price plummet from $99 per barrel(dated Brent) in 2014 to just $34 per barrel in January 2016. Gas demand from theEuropean market has also been tepid, given the increasing penetration of solar and windenergy and the availability of cheaper coal. Crude oil prices are expected to moveupward, but remain at sub-$70/bbl in fiscal 2019, and their medium-term priceoutlook remains stable.

 

In the latest half-yearly price revision, for the period from October 2017 to March 2018,domestic gas price has been increased to $2.89 per mmbtu on a gross calorific valuebasis from $2.49 per mmbtu in the first half of fiscal 2018.

 

Similarly, spot LNG prices are expected to remain under pressure over thenext two years, because of sluggish demand and rising supply, resulting in oversupplyin the global market. We expect prices (delivered ex-ship) to hover around $7.0-7.4per mmbtu in fiscal 2019.

 

To increase the falling domestic gas output, the government has introduced newinitiatives to incentivize the operations in the domestic natural gas sector. The two keyinitiatives among these include premium price for new gas discoveries in difficult areasand a new hydrocarbon exploration and licensing policy (HELP).

 

Acknowledging the issue of feasibility of low gas prices in difficult areas, the governmenthas granted permission for a premium price for new gas discoveries in difficult areassuch as 'high-pressure, high-temperature' areas, deepwater and ultra-deepwater areas.However, to ensure affordability by end-users, it has also provided for a price ceiling,based on alternative fuels. The introduction of this policy is expected to incentivize theexploration and production of gas from these difficult areas, which are expensive than theconventional gas.