India set to benefit as global LNG markets head towards supply glut, subdued prices, says ICRA

Liquefaction is the process of converting natural gas into a liquid state at ultra-low temperatures. Transportation of gas as LNG is the most viable and is considered second to only transportation by pipelines. For countries like India, which are not connected with international gas supply pipelines, importing gas in this super-chilled and liquid form is the only feasible option.

Global LNG prices saw high volatility over the past couple of years–2022 and 2023–due to a combination of reasons that included rapid recovery in global demand as the COVID-19 pandemic ebbed and the impact of the Russia-Ukraine war on global energy markets. But with close to 200 million tonnes of liquefaction capacity expected to be added globally between this year and 2028, supply constraints could be a thing of the past, at least in the near to medium term.

India, which is among the top importers of LNG, depends on imported gas to meet nearly half of its domestic requirements. With indications that the global LNG market is likely to turn into a buyer’s market with additional capacity coming onstream, countries like India stand to gain by saving valuable foreign exchange.

“Global natural gas consumption is expected to witness modest growth, given the focus of the major natural gas consumers in regions of the European Union, Japan & Korea towards other sources of energy. Amidst these demand headwinds, the LNG capacity addition over the next four years, which is equivalent to around 41% of the current global LNG production capacity, is expected to result in downward pressure on the global LNG prices,” said Girishkumar Kadam, Senior Vice President and Group Head, Corporate Ratings at ICRA.

Natural gas consumption in India is expected to grow by 6-8% YoY in 2024-25 (FY25), supported by softer LNG prices and an uptick in domestic gas production, per ICRA estimates.

“The share of LNG in the gas mix is projected to increase from 48% in FY2024 to 50% in FY2025. However, since domestic production is expected to start moderating from FY2028 onwards, the reliance on LNG would further rise as India looks to increase the share of natural gas in the energy mix,” the rating agency said.

The government has been pushing for higher consumption of natural gas in India, with an aim to increase the share of the fuel in the country’s primary energy mix to 15 per cent by 2030 from over 6 per cent at present. The push for higher natural gas consumption, even if it leads to higher imports, is not without reason. Natural gas is far less polluting than conventional hydrocarbons like crude oil and coal, and is usually cheaper than oil, for which India depends on imports to meet over 85 per cent of its requirement.

As the country moves towards green energy and future fuels, natural gas is seen as a key transition fuel in that journey. Various sectors, including the likes of city gas distribution, fertilizer, power generation, and refineries and petrochemicals, are seen as major growth areas for natural gas demand in India.