Global LNG Capacity Surge to Lower Prices, Benefit India: ICRA Report

Bengaluru: The global liquefied natural gas (LNG) sector is poised for a significant expansion, with a planned capacity addition of approximately 193 million metric tonnes (MMT) between 2024 and 2028. This increase is anticipated to result in an oversupply, putting downward pressure on LNG prices in the coming years and potentially benefitting India by providing access to more affordable LNG, according to a recent report by ICRA Ltd.

Expected Supply Glut and Price Impact

The report highlights that the substantial addition to global LNG capacity, equivalent to 41 per cent of the current production capacity, is expected to lead to a supply glut. This, coupled with the anticipated modest growth in global natural gas consumption, particularly in major markets like the European Union, Japan, and Korea—where there is a shift towards alternative energy sources—will likely contribute to a decrease in global LNG prices.

Girishkumar Kadam, Senior Vice President and Group Head of Corporate Ratings at ICRA, noted, “Amidst these demand headwinds, the LNG capacity addition over the next four years is expected to result in a downward pressure on global LNG prices. India, thus, stands to benefit notwithstanding the near-term volatility amid geopolitical tensions in West Asia.”

Impact on India’s LNG Market

India is set to benefit from the expected drop in LNG prices, as the country experiences a forecasted growth in natural gas consumption of 6-8 per cent year-on-year (YoY) for the current financial year (FY), rising from 187.9 million metric standard cubic meters per day (mmscmd) in FY24. This increase is attributed to softer LNG prices, robust demand from city gas distribution (CGD) networks, and higher gas usage by oil refiners.

CGD networks, which consist of underground pipelines supplying piped natural gas (PNG) and compressed natural gas (CNG), play a crucial role in this growth. CNG is primarily used as an auto-fuel, while PNG serves domestic, commercial, and industrial needs.

Domestic Production and Future Outlook
The report also notes that domestic gas production in India is expected to see marginal growth between FY25 and FY26. This growth will be driven by the ramp-up of production from ONGC’s KG-98/2 basin and the activation of several stranded gas production fields. The share of LNG in India’s gas mix is projected to increase from 48 per cent in FY24 to 50 per cent in FY25.

However, as domestic production is expected to begin moderating from FY28 onwards, India’s reliance on LNG is likely to rise. The country aims to increase the share of natural gas in its energy mix from the current 6.7 per cent to 15 per cent by 2030.

Strategic Implications

The planned expansion in global LNG capacity presents both opportunities and challenges for India. While the anticipated drop in LNG prices will provide short-term benefits, the long-term reliance on imported LNG underscores the need for strategic planning to ensure energy security and price stability. The Indian government’s target to significantly increase the share of natural gas in the energy mix reflects a commitment to diversifying energy sources and reducing dependence on fossil fuels.

As the global LNG market evolves, India’s ability to navigate these changes will be critical in shaping its energy landscape and achieving its long-term energy goals.