Global LNG supply glut to benefit India with lower prices: ICRA
The global LNG market is heading toward a supply glut, which is expected to keep LNG prices in check and benefit India, ICRA said in a report published on August 28. After two years of volatility in natural gas supplies and pricing in 2022 and 2023, the global LNG market is now poised for significant oversupply due to large capacity additions planned from 2024 to 2028.
Globally, approximately 193mn tonnes of LNG production and liquefaction capacity are slated to be added over the next four years. This significant capacity increase, combined with expectations of modest demand growth in global natural gas consumption, is likely to suppress LNG prices, providing an advantage to India.
Girishkumar Kadam, senior vice president and group head of corporate ratings at ICRA, said that global natural gas consumption is expected to grow modestly, as major consumers in the European Union, Japan, and Korea focus on alternative energy sources.
"Amid these demand headwinds, the addition of LNG capacity over the next four years—equivalent to about 41% of the current global LNG production capacity—is expected to exert downward pressure on global LNG prices. India stands to benefit from the availability of LNG at reasonable prices over the medium term, despite near-term volatility due to geopolitical tensions in West Asia," he said.
India's gas consumption, which faced challenges in FY2023 due to elevated LNG prices, rebounded sharply to 187.9mn m3/day in FY2024, up 17% year/year as LNG prices eased. Consumption in India is expected to grow by 6-8% year/year in FY2025, supported by softer LNG prices and an uptick in domestic gas production.
This growth is driven by the city gas distribution (CGD) sector, followed by demand from refineries. The demand from the CGD sector is underpinned by the robust performance of the CNG segment, which has maintained a strong economic advantage over alternative fuels, following a surge in CNG vehicle sales in recent years, ICRA noted.
However, the increasing adoption of electric vehicles in the passenger vehicle and bus segments poses a key threat to CNG demand. Additionally, the ability of CGD entities to offer CNG at competitive prices will be a challenge, given the declining share of APM gas in the overall gas mix. The fertilizer sector will remain the largest consumer of natural gas, though demand is not expected to grow further due to a lack of capacity expansions in the urea segment.
Looking ahead, domestic gas production is projected to see marginal growth in FY2025 and FY2026 with the ramp-up of production from ONGC's KG-98/2 basin in Q4 FY2025 and the start-up of a few stranded gas production fields.
Given the expected 6-8% annual growth in natural gas consumption in the country, reliance on LNG will remain substantial. The share of LNG in the gas mix is projected to increase from 48% in FY2024 to 50% in FY2025. However, with domestic production expected to moderate from FY2028 onwards, reliance on LNG is likely to rise further as India aims to increase the share of natural gas in its energy mix, ICRA stated.