India records 10% decline in natural gas consumption in August

19 Sept 2022 , 10:03 AM

Natural gas consumption in India declined 10% year on year in August, owing to weaker domestic output and a steep reduction in costly imports. Consumption declined to 5.2 billion cubic metres (BCM) from 5.8 BCM the previous year.

Due to high costs and limited supply on the spot market, LNG imports declined 19% to 2.37 BCM in August. Indian gas importers are unable to acquire LNG on the spot market since most supplies are destined for Europe, where customers are ready to pay record-high prices ahead of winter due to Russia's harsh supply limits.

Long-term LNG import contracts are tied to crude oil or Henry Hub, the US benchmark, and so priced substantially cheaper than in the spot market. LNG from Qatar, India's largest gas supplier, is linked to crude oil and is currently imported at a cost of $13-14 per mmBtu.

However, a crucial supplier, Russia's Gazprom, has refused to honor a long-term deal with state-run Gail for 2.5 million tonnes of LNG supply every year. As a result, GAIL has been compelled to reduce deliveries to certain of its clients.

Consumers' difficulties have been aggravated by a slight dip in domestic supply to 2.89 BCM in August from 2.92 BCM the previous year, owing to a 5% drop in output from ONGC's fields.

In the spot market, the benchmark price of LNG destined for Asian clients is now approximately $42 per mmBtu. In August, the rate had increased to about $70. This has made spot gas expensive for the majority of Indian customers. In comparison, the domestic gas price is $6.1 per mmBtu, with a ceiling of $9.92 per mmBtu for gas from local problematic fields.

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