Domestic natural gas production fell 11.4% year-on-year (y-o-y) to 27,642 million metric standard cubic metre (mmscm) in 2020 as operations became increasingly unviable for energy production companies with government lowering selling prices.
The 2,426 mmscm of natural gas produced in December was however the highest monthly output recorded in the ongoing fiscal, with the commencement of production from Reliance Industries (RIL) and BP’s ultra-deep-water field in the KG D6 Block of the Krishna Godavari basin on the east coast of India.
Demand for the natural gas in the domestic market is traditionally dependent on the fertiliser (28%), power (23%), city gas distribution entities (16%), refineries (12%) and petrochemicals industries (8%). However, due to lower cars running during the coronavirus lockdowns, CGD consumption has been less than refineries in the current financial year. Domestic natural gas output fell 2.8% y-o-y to 31,168.4 mmscm in FY20, reversing the growth trend recorded since FY18.
Domestic production has been falling with the ageing of existing fields and muted response from the industry to take up new projects, mainly due to lack of adequate incentives. Other reasons for lower output in FY20, as admitted by the government to a parliamentary committee, include lack of buyers, inadequate evacuation infrastructure and other technical constraints in hostile geographical terrains. The country aims to increase the share of natural gas in its energy mix to 15% by 2030 from the current level of about 6%.
As noted earlier by Care Ratings, the gross production of domestic natural gas will fall 10.6% during FY21 as “no company would aggressively want to increase production or get into high-risk projects with such a low gas price”. The current price for gas produced from local fields has been revised to an all-time low of $1.79/mmBtu by the government, which is much below the break-even point for most fields, the agency pointed. However, price of gas from ultra-deep-water gas fields is capped at a much higher rate of $4.06/mmBtu.
RIL and BP are jointly developing three gas fields in the KG D6 block entailing an investment of around Rs 35,000 crore, which are expected to cumulatively produce 30 mscmd by 2023, accounting for a quarter of the country’s domestic gas output.
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