India’s domestic natural gas output falls by 2% in January

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Domestic natural gas production slipped 2.2% year on year (YoY) to 2,551 million standard cubic metre (mscm) in January. The 2.6 million tonne (MT) of crude oil produced in the country during the month was also 4.6% lower than the production in the year-ago period.

Indigenous natural gas production caters to about 51% of the country’s requirements, while around 85% of the country’s crude oil is imported. Domestic natural gas output fell 2.8% y-o-y to 31,168.4 mmscm in FY20, reversing the growth trend recorded since FY18.

Natural gas production in January was, however, the highest monthly output recorded in the ongoing fiscal, with the commencement of production from Reliance Industries and BP’s ultra-deep-water field in the KG D6 Block of the Krishna Godavari basin on the east coast.

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 include lack of buyers, inadequate evacuation infrastructure and other technical constraints in hostile geographical terrains. Lower procurement of gas by bulk consumers has also been cited as a reason for fall in production in January.

The current price for gas produced from local nominated fields has been revised to an all-time low of $1.79/ million British thermal units (mBtu) by the government, which is much below the breakeven point for most fields, deterring gas producers from aggressively increasing production or getting into new high-risk projects. For ultra-deep-water gas fields like the KG D6 Block, which have higher pricing and marketing freedom, the current price cap is set at $4.06/mBtu.

Demand for natural gas in the domestic market is traditionally dependent on the fertiliser (28%), power (23%) and city gas distribution entities (16%), refineries (12%) and petrochemicals industries (8%). However, due to fewer cars running during the coronavirus lockdowns,

CGD (City Gas Distribution) consumption has been less than refineries in the current financial year. 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%.

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