India’s natural gas consumption is projected to nearly double from 65 billion cubic meters (Bcm) in 2023 to 113.7 Bcm by 2040, driven by population growth, economic development, and a shift toward cleaner energy sources, according to research from Rystad Energy. Despite a 51% increase in domestic gas production since 2020, expected to reach 36.7 Bcm by 2025, this output will fall short of meeting the nation’s escalating demand. Consequently, India will remain reliant on imports to fulfill its future energy requirements.
To address the rising demand for gas, India has strengthened its energy security by signing long-term contracts that extend into 2030 and beyond. These agreements are designed to protect the country from global price volatility and supply chain disruptions, ensuring a consistent gas supply to support its expanding economy. Securing these contracts not only enhances India’s energy security but also solidifies its position in the global liquefied natural gas (LNG) market, advancing the country’s transition to a cleaner energy mix.
Despite this growth in gas demand, India’s dependence on coal remains significant. Recent heatwaves have temporarily increased coal usage alongside LNG for power generation. Currently, natural gas contributes only 2% to the country’s power mix, with a preference for more economical options like coal and renewable energy. Analysts predict that coal-generated power will not decline significantly before 2040. While the gas-for-power sector may not be the primary driver of gas demand, it could experience growth depending on future policies promoting coal-to-gas switching or implementing carbon pricing.
India’s LNG sector is on a substantial growth trajectory, and strategic engagements with the Middle East could be a vital next step. The geographical proximity of India to the Middle East, combined with a considerable volume of uncontracted LNG production in the region, creates an advantageous scenario for India to negotiate favorable terms. The nation is positioned to attract significant interest from Middle Eastern producers, with nearly 100 million tonnes per annum of uncontracted LNG available by 2035.
Demand Drivers: Prioritizing Food Security
Looking ahead, India’s gas demand will be fueled by various sectors, including an expanding city gas distribution (CGD) network, as well as the fertilizer, refining, and petrochemicals industries. Natural gas is a crucial input for urea production, with few alternatives in the short term. The Indian government aims for complete food security and continues to provide substantial subsidies for urea production, which will maintain steady gas demand in this sector, regardless of market fluctuations.
The successful restart of four gas-based fertilizer plants in 2021 and 2022 resulted in Indian urea production reaching 30 million tonnes in 2023, although this still fell short of the year’s demand of 35 million tonnes, indicating further growth potential. Additionally, rising demand for oil products and petrochemicals is expected to increase India’s refining capacity to approximately 335 million tonnes per annum (Mtpa) by 2030, with many expansions anticipated near LNG terminals.
The CGD sector also plays a pivotal role in enhancing gas use across various applications, including transportation, industrial, commercial, and domestic sectors. The number of compressed natural gas (CNG) stations has surged more than fivefold since 2015, reaching 5,710 by April of last year, while piped natural gas (PNG) connections have more than quadrupled to 12 million during the same period. Recent CGD bidding rounds are expected to extend the network coverage to nearly 100% of India’s geographical area, serving a population of over 1.4 billion.
Potential Challenges Ahead
Despite the optimistic outlook for India’s gas sector, several challenges could impede its growth. A significant concern is the history of Indian buyers renegotiating or abandoning nearly completed contracts, creating uncertainty for suppliers. This tendency for flexibility and cost-effectiveness over long-term commitments underscores India’s aim to secure the best prices for consumers amid a volatile global market, potentially limiting LNG growth prospects.
Additionally, slow infrastructure development poses a challenge to the gas sector’s expansion. Regasification terminals are largely concentrated in western India, and efforts to broaden the gas pipeline network to other regions have been inconsistent. This slow progress results from regulatory hurdles, investment challenges, difficult terrain, and competing priorities, as India also allocates substantial resources to the development of renewable energy alongside its gas infrastructure.
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