India's gas reliance grows as Europe cuts down on energy consumption

GAIL (India), a torchbearer for India’s natural gas ambitions, stumbled into the second quarter of 2022-23 (FY23), weighed down by the turmoil in the global gas markets. It was forced to slash supplies to customers after a former Gazprom unit stopped liquefied natural gas (LNG) shipments. 

Farther away, in Europe, member nations have introduced gas storage obligations, and agreed upon voluntary targets to cut gas and electricity demand by 15 per cent this winter. 

Germany, Russia’s biggest gas customer, has reduced consumption of the fuel for both industries and residences after Europe’s Title Transfer Facility (TTF) gas benchmark price scaled peaks of over $90 per million British thermal units (mBtu). 

India’s growing dependence on natural gas, an offshoot of proposed and ongoing investments of more than Rs 2 trillion in gas infrastructure, is happening when parts of the wealthy, developed world are withdrawing from the fuel because of lack of affordability.

The cleaner burning fuel, adopted by nations as a transition fuel en route to clean energy forms such as solar and wind, may be running out of steam, says Fatih Birol, executive director of Paris-based International Energy Agency (IEA). 

India’s demand for the fuel has slumped 5 per cent in the April-September period of FY23 to 31.5 billion cubic metres from a year ago, after rising 5 per cent 2021-22.

The country’s LNG imports in the first half of the financial year fell 11 per cent from a year earlier after a surge in global gas prices, following the Russian-Ukraine conflict led to a fall in gas use.

Gas consumption fell 10 per cent in August compared with a year ago, and dropped by another 9 per cent in September, according to oil ministry data.

The depth and intensity of the present-day crisis have led to concern about the future cost and availability of natural gas, damaging confidence in its reliability and denting the idea of it serving as a transition fuel. As a result, the era of rapid global growth in natural gas demand is drawing to a close, the IEA said in its World Energy Outlook 2022.

Benchmark TTF, Europe’s LNG price marker, has trebled to over $30 per mBtu by December 2021, from less than $10 per mBtu in the first half of 2021.

Russia’s invasion of Ukraine in February this year had a huge impact on an already fragile global gas balance, bringing high levels of market volatility, the IEA said.

Some gas-intensive manufacturing plants in Europe have curtailed output because they cannot afford to keep operating, according to the IEA’s World Energy Outlook.

Europe has bid up prices of the US, Australian, and Qatari shipborne LNG and diverting supply away from traditional LNG customers in Asia. High LNG prices have led to energy shortages in neighbouring Pakistan and Bangladesh, while curbing demand for the fuel in India.

South Asia cannot compete with Europe for LNG supplies, says Mathew Carr, head of CarrZee, a London-based clean energy intelligence provider.

From over 15 per cent growth in LNG imports, which account for over half of India’s gas needs, analysts, led by rating agency CRISIL, are now expecting a decline in demand for the fuel.

Operations are unsustainable at such high spot LNG prices, says a GAIL executive. India has to rely on scarce long-term contracts because the cost of freight and LNG has made it unaffordable to Indian consumers, observes a Petronet LNG executive.

Prime Minister Narendra Modi’s government has targeted more than doubling the share of gas in India’s energy mix to 15 per cent by 2030, from the current 6 per cent. The target looks distant.

GAIL has cut supplies of as much as 9 million cubic metres (mcm) of gas per day to its customers in the past few months after former Gazprom subsidiary Securing Energy for Europe (SEFE) Marketing and Trading defaulted on a 2.5-million tonne per year long-term contract.

SEFE failed to deliver 17 LNG cargoes to GAIL, forcing the gas distributor to cut 2.5 mcm per day to fertiliser users, a similar volume to industries, and the rest to its own chemical plant.

The Modi government recently constituted the Kirit Parekh Committee to review a market-based gas price formula and perhaps cap rates, so that billions of dollars invested by the likes of Adani, Total, Indian Oil Corporation and others in gas distribution infrastructure do not lie unused. But capping domestic gas prices will disincentivise domestic gas output and lead to greater reliance on imports, say Oil and Natural Gas Corporation executives.

Reliance Industries and BP, which together will produce 30 per cent of the country’s output at peak, have demanded unshackling of fuel prices. Any further price controls will only increase the country’s reliance on imports, add industry officials.