Natural gas prices dip up to 20 per cent on supply glut

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AHMEDABAD/NEW DELHI: Natural gas prices have dropped by up to 20 per cent in the spot market, bringing relief to Indian refiners, power and fertiliser producers, which are now dependent on imports for most of their requirement.

Industry experts say prices of liquefied natural gas (LNG) have been on a slide for the past four months because of increased supplies from some producers like Australia and Nigeria, and sluggish demand from major consumers like the US and Japan.

"LNG prices have come down considerably in the past quarter," said DM Desai, chief executive at Ahmedabad-based consulting firm Ethical Energy-Petrochem Strategies. "It is because of softening oil prices while the demand from the major gas consuming nations like Japan and US has remained stable."

Gail, the country's largest state-owned gas processing and distribution company, recently booked an LNG cargo at $13.50 per million metric British thermal units (mmBtu), against $17 per mmBtu it paid for the previous cargo. Similarly, Gujarat State Petroleum Corporation, the country's largest LNG trader, booked a cargo for delivery in October at $12 per mmbtu compared to $16 it paid for a cargo in June.

LNG accounts for close to a fourth of India's total natural gas consumption. The country imported close to 55 mmscmd of LNG in 2011-12. Experts say the drop in natural gas prices has come as a relief for Indian consumers, who have been paying more for the gas because of depleting production at home and a depreciating rupee. The price of compressed natural gas recently touched an all-time high of Rs 53 per kg in Gujarat, which accounts for a third of the country's total natural gas consumption. In Delhi and neighbouring cities, CNG prices have increased 25 per cent in just one year. While CNG now costs Rs 38.35 per kg in Delhi, it is priced at Rs 43.10 per kg in Noida, Greater Noida and Ghaziabad.

With supplies dwindling from Reliance Industries' KG-D6 basin on the east coast, most of the country's big oil refiners have become increasingly dependent on imported gas. RIL and Essar are now banking on spot LNG cargos to feed their refineries and power plants. Falling output from D6 has also affected city gas distribution companies, which have not received gas under the administered price mechanism from D6 for almost a year now. These companies are now rejoicing at cheaper imports.

Courtesy: Economic Times


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