ANALYST VIEW: India downstream demand a driver for 2024 LNG imports

SINGAPORE  (ICIS)–ICIS has revised higher its LNG demand expectations for India in 2024, projecting a 13% increase from 2023 based on faster recovery in industrial demand.
LNG imports are still forecast to remain below the peak year of 2020 and may still be capped by higher domestic gas supply and/or adverse global LNG market movements.

• Strong fundamentals back industrial and city gas growth
• Improved LNG price outlook bolsters demand prospects
• ICIS revises higher its Indian LNG demand outlook for 2024

INDIAN INDUSTRY
Results for January showed strong demand fundamentals, with the highest gas demand growth coming from the sector named ‘others’, comprising mainly steel and other large industrial consumers.
LNG consumption remains below pre-crisis levels. This is largely the result of gas-on-gas competition.
Over the last three years, the sector has grabbed the largest share of India’s rebound in domestic gas supply. Whereas LNG imports accounted for more than 50% of gas supply in 2020, this shrunk to 20% by 2023. In the same period, domestic gas supply rose from about 3billion cubic metres (bcm) in 2020 to over 12bcm last year.
This coincides with gas production growth in the eastern offshore KG basin, where Reliance Industries/BP commissioned its R-Cluster and Satellites fields in December 2020 and April 2021, and its MJ field in June 2023.
As deep offshore fields, the gas is marketed relatively freely compared to other Indian gas supply sources.
At the same time, the sector’s LNG demand fell in 2021-22 and recovered only moderately in 2023. However, the outlook for domestic gas supply growth looks increasingly uncertain and appetite for LNG is already showing signs of picking up in recent months.
India is the world’s second largest steel producer, with production targets for 2030 indicating annual growth of about 7%. The country also holds of one of the world’s fastest growing markets for steel consumption and its per capita consumption sits well below world average.
The east-coast Dhamra LNG terminal, which received its first cargo in April last year, is situated to fuel production growth from steel plants in the eastern states of West Bengal, Jharkhand, and Odisha. The final completion of the Jagdishpur-Haldia and Bokaro-Dhamra Pipeline (JHBDPL) network in June 2024 will also facilitate greater LNG intake.

OTHER SECTORS
In addition, LNG demand growth is forecast to come from other industrial sectors like refineries and petrochemicals. Both sectors sharply curtailed LNG consumption at the early stages of the gas crisis in 2021-22 as soaring prices resulted in fuel substitution and culminated with outright production cuts in the petrochemicals sector.
As in the case with steel producers, rising domestic gas supply capped LNG demand recovery in 2023, and were still below 50% compared to import volumes in 2020.
But data from early 2024 is also here indicating a gradual shift back to LNG.
Reliance Industries securing a partial cargo for delivery to Dahej in January is a clear sign that LNG is returning to favour.
The Dhamra LNG terminal and JHBDPL network is also key in this respect, with several refineries present in eastern states: Bihar, West Bengal, and Odisha. A pipeline connection to the northeast also opens for LNG supply to four refineries located in Assam.

CITY GAS, FERTILIZER
The city gas sector is also forecast to expand its LNG use in 2024, though its trajectory has differed from industry. Its price response came relatively late, in the last months of 2022, and it was the only sector to reduce its LNG demand in 2023.
Its delayed LNG demand recovery is possibly tied to higher LNG intake in the fertilizer sector. In May 2023, a pooling mechanism, which mandates state-owned GAIL to offer gas on a uniform base price was extended from fertilizer to city gas.
The base price is calculated on a blend of supply from domestic gas and LNG import sources, but also means GAIL is now in large part managing supply into both sectors. As domestic gas supply into the fertilizer sector has dwindled, with LNG now accounting for close to 90%, backed with GAIL’s US LNG supply contracts, the city gas sector has moved in the opposite direction. City gas sales made a record in 2023 but LNG demand is still down by close to 50% from its 2021 high.
But as with industry, there are already signs that LNG is recovering its position against domestic gas supply. The growth fundamentals are also strong.

OUTLOOK
However, the outlook is premised on stable LNG prices, which could be challenged later in the year.
ICIS modelling shows a relatively moderate increase in European gas demand could severally tighten the LNG market from H2 2024.
A scenario of this kind would likely force a reaction from the Indian market.