India’s import bill for natural gas surged by 18.5% to $7.7 billion during the first half of the current fiscal compared with $6.5 billion in the same period a year ago due to a rise in consumption particularly by the city gas distribution (CGD) companies and the power sector, data from the Petroleum Planning and Analysis Cell showed.

The import bill for the month of September stood at $1.2 billion against $1.1 billion in the corresponding period of last fiscal.

In volume terms, the country imported 18,975 million standard cubic meters of LNG (liquified natural gas) during April to September, up by 23% from the corresponding period of FY24, the data showed. The growth was also supported by stabilised prices of natural gas from the earlier highs recorded in FY23, enabling consumers to buy more imported gas, as per analysts.

The country’s dependence on imported gas increased to 51.5% in the period from 46.8% in April-September of FY24. In the month of September alone, the import dependency surged to 49.7% against 46.5% in September 2023. CareEdge Ratings expects the country’s gas import dependency to remain at around 45% by FY26.

One of the key agendas of the government has been to boost domestic production of crude oil and natural gas, and thereby reduce the country’s dependency for energy. However, the domestic production of crude oil and natural gas has remained stagnant and the country’s import dependency has only increased.

While the government has expressed its willingness to give more incentives to the global energy giants to encourage them to invest in oil and gas exploration in Indian territory, experts remained cautiously optimistic about the plan. They suggested more flexible work programs, waiver of goods and service tax(GST) on capital equipment, and abolition of the “windfall tax” on crude oil, to boost investor confidence in India’s hydrocarbon sector.

During the period, the country’s consumption of natural gas increased by almost 12% to 36,850 mmscm with major demand coming in from the CGD, fertilizer, and the power sector.

In 2022, the sudden outbreak of war between Russia and Ukraine had led to a sharp increase in prices of natural gas in FY23 as a result of which gas lost its cost competitiveness to the alternate fuels. Accordingly, natural gas consumption declined in FY23. However, with range-bound prices, analysts expect the consumption to grow in the medium term. Moreover, the Central Electricity Authority expects the country’s power demand to grow at a compound annual growth rate of 7% for the next five years. With renewable energy still not fully operational, the dependency on coal-based and gas-based plants is expected to increase to meet the incremental power demand.

As the imports continue to grow, the country’s production of natural gas only registered a marginal increase of around 2% in the Apr-Sep period. The production growth has remained below the set targets. State-owned major oil and gas production company Oil and Natural Gas Corp produced 9,407 mmscm of natural gas during the period, 4% lower than the same period of last fiscal and much lower than the target of 9,833 mmscm for the period, according to PPAC data.

Oil India however registered an increase of 4% in its gas production during Apr-Sep from last year at 1,577 mmscm but failed to reach the target of 1,932 mmscm gas production.

However, due to new gas discoveries in a few off-shore fields coming onstream, CareEdge expects domestic natural gas production to improve in the medium term on the back of production ramp-up from discoveries of the recent past along with sizable new production expected to come onstream in FY25.Going forward, analysts also see gas imports to increase at a moderate pace in spite of expected growth in domestic production as the consumption of natural gas is expected to outpace domestic production.
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