COMMODITIES 2025: India's LNG imports to rise 4%-10% amid boost in demand, policy support

This is part of the COMMODITIES 2025 series where our reporters bring to you key themes that will drive commodities markets in 2025.

India's LNG imports are set to rise in 2025, with the increase expected to range from about 4% to 10%, reflecting robust local consumption, resilient economic growth and policy development, although tempered by international fuel prices amid supportive global demand-supply fundamentals, industry sources and analysts said.

A gradual rise in offshore gas production, strengthening pipeline infrastructure and increased regasification capacity are positive for natural gas consumption as India targets a 15% share of the fuel in its overall primary energy mix by 2030, up from the current 6%-7%, they told S&P Global Commodity Insights.

India's 2023 LNG imports were around 22.6 million mt/year, with 2024 imports projected to grow to about 27 million mt/year, surpassing the record of 26 million mt/year in 2020, according to Commodity Insights data.

"The [global] LNG market in 2025 remains tight, which will leave prices volatile and subject to movements following supply or demand shocks," James Taverner, senior director at Commodity Insights, said.

"We forecast the Platts JKM price to average about $14.3/MMBtu in 2025, up from $11.8/MMBtu in 2024," Taverner added.

The anticipated increase in 2025 spot LNG prices can be attributed to Europe seeking more LNG following the cessation of Russian pipeline flows via Ukraine and delays in new supplies expected to come online in 2024, according to Ayush Agarwal, LNG analyst at Commodity Insights.

Agarwal's forecast for India's 2025 LNG imports hovers around the lower end of the range. He predicts that, as a price-sensitive buyer, the country's imports will reach about 28 million mt/year due to tight international markets, supported spot prices and a rise in domestic natural gas production.

"When it comes to domestic gas production, we are expecting some additional volumes from ONGC in Q1 2025," said Indian Gas Exchange Managing Director and CEO Rajesh Kumar Mediratta. However, he opined that LNG imports will remain strong to fill the demand-supply gap, forecasting a 10% year-over-year growth in 2025.

Among gas-using sectors, the fertilizer segment is likely to drive only marginal incremental demand in 2025, while the city gas distribution segment is poised for a 10% year-over-year growth, Mediratta said. The CGD sector currently consumes about 40 million standard cu m/day of gas, he added.

The pipeline network expansion in 2025, including the expected commissioning of the Urja Ganga Gas Pipeline project and the partial development of the Indradhanush Gas Grid project (in the northeastern region), will cater to the needs of a few refineries, large industries, CGDs and fertilizer plants not connected to the grid, stimulating additional gas demand, Mediratta said.

Meanwhile, India's LNG regasification capacity is anticipated to rise, which is positive for LNG prospects. A recent HSBC Global Research report forecast at least a 25% year-over-year increase in the country's LNG regasification capacity.

Power sector guzzling gas

"The power sector will face more peak shortages and continue to take on more [gas] next year," Mediratta said.

The Central Electricity Authority expects power demand in India, the world's third-largest electricity market, to grow at a compound annual growth rate of about 7% in the coming years.

"India's increasing peak power requirements, especially during summer months, necessitate flexible power generation sources," said Anish De, global head for energy, natural resources and chemicals at KPMG.

"Gas-based power plants can be utilized at peak demand times due to their ability to ramp up quickly," De added.

Currently, the share of natural gas in India's electricity generation mix is less than 2%, while over 70% of the electricity mix is coal-based.

For a successful coal-to-gas switch, the key lies not only in pricing but also in harnessing structural reforms, according to Essar Exploration and Production CEO Pankaj Kalra.

"With indigenous coal priced at $3-$5/MMBtu and imported coal around $4.5-$6/MMBtu, LNG pricing needs to fall within the $6-$8/MMBtu range for gas to become competitive for power generation," Kalra said.

Large-scale battery storage can work synergistically with gas-based power generation, he added.

With the right pricing and structural reforms, gas could become an essential part of the energy mix, complementing renewables in the energy transition, Kalra said.

Meanwhile, enablers, such as increased allocation of domestic gas to the power sector, the imposition of a carbon tax or any other carbon pricing mechanism for coal-based power generation and round-the-clock bundled regas tenders, may also be explored to boost gas consumption in power, De said.

Embracing GST, sector reforms

One highly anticipated reform in 2025 is the inclusion of natural gas in the goods and services tax framework.

Under the current value-added tax regime, CGD companies face dual levies on interstate transportation of gas. This would be eliminated under the GST regime, simplifying compliance and administrative processes, De said.

Bringing natural gas within the ambit of GST will allow all stakeholders, including E&P companies, consumers and CGD entities, to avail themselves of input tax credits, making gas prices more competitive with alternative fuels, De added.

This sentiment was also echoed by other industry sources. Bringing gas under GST "would simplify operations for energy companies like ours and facilitate smoother execution of projects," Kalra said.

Meanwhile, unconventional sources such as coal bed methane have the potential to reduce India's dependency on gas imports. Policies and incentives must be aligned to encourage investments in CBM, Kalra added.

To reform the sector, further incentivization of compressed biogas plants is required to enhance their viability, De said.

"There lies significant potential in several E&P blocks that are currently not considered commercially viable due to various contingencies," De said, adding that tapping into these supply sources would help bridge the gap between gas demand and domestic production.