Indian government orders redirection of natural gas to priority sectors

The Indian government has ordered the redirection of all domestic gas and regasified LNG to key priority sectors, overriding existing gas sales agreements amid supply disruptions from the war in the Middle East.

The government identified four priority sectors and set allocation percentages for each, as per a notification issued by the Ministry of Petroleum and Natural Gas on March 9.

The notification said that the gas requirement will be met by curtailing supplies to petrochemical facilities, including but not limited to ONGC Petro additions Ltd. (OPaL), GAIL's Pata Petrochemical Complex, Reliance's oil-to-chemicals business, and other high-pressure, high-temperature (HPHT) gas consumers. Gas will also be redistributed via full or partial curtailment of power plants as required, it said.

Oil refining companies must absorb the impact of LNG supply disruptions by reducing gas allocation to refineries to around 65% of their average consumption over the past six months, subject to operational feasibility, the order said.

The first priority sector includes domestic piped natural gas (PNG), compressed natural gas for transport (CNG), and liquefied petroleum gas (LPG) production. Supply to this sector will be maintained at up to 100% of the average consumption over the past six months, subject to availability, to also meet the operational requirements of pipelines.

The fertilizer sector is the second priority, with supply maintained at 70% of average consumption over the past six months, subject to availability.

The third priority includes tea industries, manufacturing and other industrial consumers supplied by the national gas grid. Their supply will be maintained at 80% of the average consumption over the past six months, subject to availability.

For the fourth priority, city gas distribution (CGD) entities must ensure that their industrial and commercial consumers receive 80% of their average gas consumption over the past six months, subject to operational availability.

The order said GAIL will implement the directive in coordination with the Petroleum Planning and Analysis Cell, or PPAC. For every diverted volume of natural gas, GAIL will submit an invoice to the PPAC, it continued.

The PPAC will notify a pooled price for the natural gas diverted from non-priority to priority sectors, the order said.

Indian marketers await operational clarification on how quickly GAIL can make the order effective.

Changing dynamics

On March 9, India's Minister of External Affairs, Subrahmanyam Jaishankar, said in a statement that the ongoing conflict in the Middle East was of "particular concern for India" as the region has many important oil and gas suppliers.

He noted that the Government remains committed to ensuring energy security.

"For us, the interests of the Indian consumer have and will always be the overriding priority," he said.

"Where required, Indian diplomacy has supported the endeavours of our energy enterprises in this volatile situation," he added.

India faces "material gas demand destruction" if LNG flows via the Strait of Hormuz remain disrupted, with losses estimated at 1.9 billion cubic meters within 30 days (63 million cubic meters/day) and rising to 4.7 Bcm over three months if disruptions persist into end‑May, reflecting India's heavy reliance on Qatari and Emirati LNG, limited storage, and high price sensitivity across gas-consuming sectors, S&P Global Energy CERA analysts said on March 6.

Demand destruction will likely be concentrated in LNG‑exposed, price‑sensitive sectors -- namely, refineries, petrochemical, and power, they said.

According to PPAC data for August-January, the fertilizer sector consumed an average of 1,745 million standard cubic meters of domestic natural gas and LNG combined over the last six months. City gas distribution companies consumed an average of 1,396 million standard cubic meters per month over the same period. Indian marketers awaited operational clarification on how quickly GAIL would make the order effective.

The industrial sector consumed a monthly average of 67 million scm over the last six months.

In contrast, the petrochemical and refinery sectors consumed monthly averages of 346 million scm and 510 million scm, respectively, while the power sector consumed an average of 625 million scm per month over the last six months.

India has been severely impacted by the war in the Middle East, with over 60% of its LNG supply originating from the region.

Platts assessed the West India Marker, the benchmark for LNG cargoes delivered to India, for April at $24.745/MMBtu on March 10. The price was assessed at $10.397/MMBtu for April on Feb. 27, before the war in the Middle East broke out.