Gas consumption fell 6.5% year-on-year in the April-June quarter to 16 billion cubic meters (bcm), according to oil ministry data. Domestic output declined 4.3% to 8.3 bcm as production from Reliance Industries‘ and ONGC‘s fields fell, while LNG imports dropped 8.6% to 7.7 bcm as soaring spot prices made imports unaffordable for some customers.
India depends on imports for half of its gas consumption, with the majority of LNG supplies coming from Gulf countries. The war disrupted those supplies, increasing reliance on cargoes from elsewhere. Most LNG is procured under long-term contracts, with only a small share sourced from the spot market.
The war cut off supplies from Qatar, India’s largest LNG supplier under a long-term contract, forcing Indian buyers to seek more expensive alternatives. Dependence on spot purchases has risen even as prices have skyrocketed.
Global LNG prices surged after the Iran war began on February 28. JKM, the Asian spot LNG benchmark, averaged $20 per mmbtu in March, nearly double February’s $10.7. The benchmark averaged $16.9 in April, $18.3 in May and $16 in June. A recent resumption of US-Iran hostilities has again pushed the benchmark above $20 per mmbtu.
Most of India’s long-term LNG contracts are linked to crude prices, while a major long-term contract with the US is benchmarked to US Henry Hub gas prices. Henry Hub prices were far less volatile than regional LNG benchmarks, making US supplies more attractive to Indian buyers during the current crisis. In normal times, however, US LNG is often uneconomical for Indian consumers because of high shipping costs.
India’s domestic natural gas production has been declining for the past two years, mainly because of falling output from Reliance Industries‘ KG basin fields. In the April-June quarter, production from private-sector fields fell 7.5%, while output from state-run producers declined 2%. The private sector accounts for 37% of India’s domestic natural gas production.