Import dependency for natural gas consumption expected at around 45% by FY26: CareEdge Ratings

CareEdge Ratings expects India's reliance on imported liquefied natural gas (LNG) to decline further in the coming years, on the back of rising domestic natural gas production. 

In a recent report, the ratings agency highlighted that India's LNG dependence, which stood at 53% of total consumption in FY21, has been gradually decreasing over the past three years. CareEdge Ratings forecasts this trend to continue, with LNG reliance settling around 45% by FY26.

This decline is expected to be driven by a significant increase in domestic gas production. Nearly 30 million metric standard cubic meters per day (MMSCMD) of new domestic production has come onsteam over the past three years, with an additional 15 MMSCMD expected to follow suit in FY25. This growth in domestic supply is seen as a key factor supporting the higher demand for natural gas in the country.

Hardik Shah, Director at CareEdge Ratings, said, “With the greater thrust of the government in transitioning towards cleaner fuel, there was a steady growth in natural gas consumption till FY20. However, due to the impact of the COVID-19 pandemic and the sharp increase in imported LNG prices due to the geopolitical situation, there had been a decline in natural gas consumption during FY21 and FY23, respectively.”

CareEdge Ratings predicts a rebound in India's natural gas consumption, anticipating a record annual high in FY24. This comes after a decline in FY23, where gas lost its edge due to a sudden price surge triggered by the Russia- Ukraine war in February 2022. The conflict caused a significant rise in natural gas prices, making it less competitive compared to alternative fuels.

“India aims to increase the share of natural gas in its primary energy mix from the existing 6% to 15% by 2030, focusing on key end-use sectors like fertilizers, city gas distribution, power, refineries, and petrochemicals. Despite high reliance on imports in the past due to falling domestic production, significant growth in domestic gas output from FY22 onwards, along with expected increases in FY24 and FY25, offers hope for reduced import dependency."

"Regulatory steps to adjust domestic gas pricing, stabilizing imported gas prices, adequate LNG capacity in India, and expanding gas pipeline infrastructure are expected to support this shift towards a greater share of natural gas while keeping our import dependency at around 45% of total natural gas consumption by FY26,” added Shah. 

The report continued that due to the restricted production of natural gas within the country, India historically had a high dependence on imported gas. As per the report, domestic gas production is expected to improve in the medium term on the back of production ramp-up from discoveries of the recent past along with sizeable new production expected to come onstream in FY25. The dependence on imports would have been much higher had there been no growth in domestic gas production.