Indian state-controlled oil and gas companies are focusing more on domestic gas production as constant volatility continues to keep LNG prices above their historical average. This is despite LNG prices having already retreated from their peak in 2022.
Domestic natural gas production has been rebounding steadily since the end of the Covid-19 pandemic as the government aims to make the country a gas-based economy. India's share of natural gas in its primary energy mix is targeted to rise to 15pc by 2030 from around 6pc last year.
Domestic gas output from India's offshore fields such as the Mumbai High and Krishna-Godavari (KG) basin in the east India rose by 4.5pc from a year earlier to 17.49mn t (23.2bn m³) in 2022, while gas production from onshore fields remained largely unchanged at 7.8mn t, according to oil ministry data. India's natural gas output was 25.18mn t in 2022, up by 3pc from 2021.
The country's LNG imports fell by 15pc from 2021 to 20.48mn t in 2022 because of elevated spot prices following the Russia-Ukraine conflict.
Firm European demand for LNG cargoes prompted Indian importers to trim purchases, as European buyers rushed to secure LNG supplies after the region lost the majority of its Russian pipeline gas supplies in 2022.
While LNG delivered to India prices have fallen by 65pc from their peak in 2022 and 42pc from the average in 2022, LNG imports in the country have yet to recover to pre-pandemic levels as spot bookings remain lower.
Argus last assessed the front half-month of LNG deliveries to India and Middle East at $16.78/mn Btu on 30 January, down by 18pc from a month earlier but up by 11pc from 20 August 2021, prior to the outbreak of the Russia-Ukraine war and increased competition for LNG supplies between Asian and European buyers sent spot prices skyrocketing.
Capacity utilisation of Petronet LNG's 17.5mn t/yr Dahej regasification terminal had risen to 81pc during October-December last year as LNG prices eased sightly, Petronet chief executive Akshay Kumar Singh said on 20 January. India's largest LNG import terminal operated at around 68pc over July-September last year, down from 86pc over the same period in 2021.
If prices remain at $15-20/mn Btu some spot purchases are expected during January-March. But "anything above $20 is not sustainable in the Indian market", said Petronet director finance Vinod Mishra.
A slight dip in India's forecasted GDP growth during the 2023-24 fiscal year ending 31 March potentially also limits any major rise in LNG imports.
"We don't expect a sharp recovery in FY24 [2023-24] import volumes as we expect global LNG prices to remain well above historically ‘normal' levels', despite the correction from last year's peak levels," Fitch Ratings director, corporate ratings Mohit Soni told Argus. India's GDP growth rate is estimated at 6.2pc in 2023-24 compared with 7pc in 2022-23, he added. This is likely to cap any potential increases in LNG imports.
"In the near term, volatile LNG prices and production ramp-up at some deepwater domestic gas fields would prevent import dependency from increasing significantly," according to a Fitch report. "However over the medium term, import dependency may rise again, especially if demand increases more sharply than expected."
Deepwater boost
Market participants expect India's natural gas production increase to be driven mainly by increased output at the complex deepwater fields.
State-controlled upstream firm ONGC's KG basin project and the newly commissioned Sagar Samrat mobile offshore production unit in the Arabian Sea and domestic conglomerate Reliance Industries (RIL) and BP's KG-D6 block is set for a sizeable gas production boost.
Sagar Samrat began its operations early this year and is set to handle up to 20,000 b/d of crude with a maximum export gas capacity of 2.36mn m³/d. It has also started producing 200,000 m³/d of gas from an appraisal well on its SB-20 block from its western offshore fields in the Arabian Sea, which has a potential capacity of 2.1bn m³.
RIL and BP aim to raise its gas output from the KG-D6 block to 30mn m³/d over 2023-24 after they commission the MJ fields during the current quarter. ONGC expects its overall gas output to reach to 24.387bn m³ by 2023-24 and 26.124bn m³ by 2024-25 from 21.09bn m³ in 2022-23.
"Production at Reliance Industries' deepwater fields in the KG-DWN-98/3 [KG-D6] block should ramp up to 28mn m³/d in the next few years from 18mn m³/d in FY22. Production at ONGC's KGDWN-98/2 block, located next to RIL's KG block, should ramp up to 12mn m³/d from low-single digits currently," the Fitch report added.
Pricing formula growth
Even as higher price realisations from India's deepwater fields support natural gas output, the government's recommendation for keeping the pricing formula for such fields unchanged may also further spur RIL and ONGC to continue developing newer fields.
Such fields are currently paid a ceiling price of $12.46/mn Btu, while the price of conventional gas produced by state-controlled firms has been set at $8.57/mn Btu until March 2023.
The Kirit Parikh committee — run by a former government economic adviser — has recommended capping prices of domestic gas supplied to priority sectors, such as fertilizer, power and city gas, at $6.50-7/mn Btu that is nearly $2/mn Btu lower than current rates.
The recommendation is perceived to give the government more power to control prices of the fuel, which are currently pegged to international gas benchmarks, including the the US' Henry Hub and the UK's NBP.
