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India's city gas demand may drop by 25%-30% as COVID-19 cripples key states

Highlights

City gas demand could fall by up to 30%: government official

Cargoes meant for India offered on spot market: LNG traders

Pandemic-hit states have highest gas penetration

Singapore — India's city gas demand is expected to drop by around 25%-30% in the coming months as the COVID-19 pandemic spreads across large cities and states that are also the main consumers of natural gas with the highest penetration of gas pipeline networks, according to government officials and gas company executives.

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Weaker demand has already impacted gas procurement as spot LNG imports have been curtailed since the start of April, LNG carriers headed to Indian ports have been diverted to other markets, and many LNG vessels are waiting longer than usual to discharge their cargoes.

LNG traders said cargoes meant for India were being offered on the spot market, and Indian terminals may not be able to receive their usual cargo volume.

India's natural gas demand

The overall impact on India's natural gas demand may not be as severe as 2020, when the first wave of COVID-19 had hit and a nationwide lockdown had caused a nearly 40% drop in gas consumption, an official at the oil and gas ministry said.

However, the official said demand from the city gas distribution, or CGD, segment was expected to drop by around 25% as infections rise in metro cities like New Delhi, Mumbai and Kolkata. Other executives put the number at around 30%.

Natural gas has a relatively small share in India's energy mix, accounting for just over 6% of demand.

In the April-February period of fiscal 2020-21, India's gas demand was the largest in the fertilizer sector (32%), followed by power generation (20%), city gas (16%), refineries (14%), petrochemicals (5%) and others (12%), according to the latest government data. Roughly half of the gas from CGD is sourced from LNG imports.

India's total natural gas consumption during April-February 2020-21 was around 51.5 billion cubic meters, and in February 2021, it was 4.6 billion cu m, official data showed. The latest full month data available was for February. A 30% decline in city gas demand makes a relatively small dent, but other sectors are also struggling in the pandemic.

Pandemic worsens in key states

While industrial activity has not been fully halted like in 2020, factories have slowed operations or lowered the number of shifts due to rise in infections, migrant workers leaving cities, or maintenance work.

Transportation and passenger mobility has been severely hit, affecting diesel and gasoline demand, and to an extent that refinery throughput has decreased and natural gas demand is down, although most Indian refiners said they were maintaining run rates as they can export surplus products.

CGD, which comprises industries, household consumption and gas-fueled transport, has been the main driver of India's gas demand growth and accounted for over 20% of gas demand in some months.

The states with the highest penetration of city gas are the western states of Gujarat and Maharashtra, Uttar Pradesh in the north, and the capital New Delhi, which also happen to be some of the worst hit regions by the pandemic.

The main Indian LNG terminals in the country's west are Gujarat State Petroleum Corp. and Adani Group's Mundra LNG, Petronet LNG's Dahej, Shell's Hazira and state-run GAIL's Dabhol terminal. These terminals and their pipeline networks supply to the same pandemic-hit industrialized states.

India's biggest city gas distributors are Indraprastha Gas, which mostly supplies to the National Capital Territory of Delhi with a distribution network geared towards public transportation, Gujarat Gas Ltd., which supplies gas to industrial users and compressed natural gas stations, and Mahanagar Gas, which supplies Mumbai and its adjoining areas mostly for transportation. Out of these, Gujarat Gas has the highest dependence on LNG at almost 80% of gas supply, compared to 10%-15% for Indraprastha Gas and Mahanagar Gas.

A Mumbai-based analyst said Indian gas companies were shying away from talking about the impact of the unfolding crisis because of the upcoming earnings season.

"It's an extremely difficult situation as many of our employees have been hit by the pandemic. We are at the moment concentrating on ensuring medical treatment to our staff as our usual operations have been disrupted," an official of state-run Petronet LNG said.

An official with GAIL said the company had the option of selling contracted LNG in the international market due to strong spot LNG prices, and ruled out the possibility of any term contract defaults.

"We don't foresee any possibility of default for LNG term contracts as natural gas is an internationally traded commodity that can be sold anytime in the global market," he said.