The reduction in domestic gas allocations for urban gas distribution companies (City Gas Distribution, or CGD) in India is pushing them to look for alternatives. Markets for regasified liquefied natural gas (RLNG) thus become essential to meet growing demand and bridge the gap.
Reduction in domestic allowances
Since the week of November 11-15, major companies in the sector, such as Indraprastha Gas, Mahanagar Gas and Adani Total Gas, have seen their domestic gas allocations reduced by 13% to 20%. These reductions reduce domestic supplies to around 40% of needs, compared to 64% to 67% previously.
Companies reported these developments to the stock exchanges on November 16, highlighting the potential impact on their profitability. To compensate, they turn to RLNG, whose prices are significantly higher than those of domestic gas.
Impact on prices and market
This increased reliance on RLNG is reflected in the market. Indraprastha Gas has already floated a tender for the purchase of 2.2 million standard cubic meters per day (MMSmcd) of RLNG for December. Other companies should follow to secure their supplies.
Transactions on the India Gas Exchange (IGX) reached 652,700 million British Thermal Units (MMBtu) for the week of November 11-15, reflecting an increase in activity. Meanwhile, a tender from Gujarat State Petroleum Corp (GSPC), launched on November 12, was awarded at a price close to $13.8/MMBtu for December.
The benchmark West India Marker (WIM), which measures LNG prices delivered to western India, was valued at $13.5/MMBtu on November 15, with the average for December set at 13. $21/MMBtu. These increasing prices risk being passed on to end consumers.
Consequences for businesses and consumers
Increased reliance on RLNG raises operational challenges for urban gas distribution companies. The latter must absorb higher, often unavoidable, supply costs without compromising their financial viability.
For consumers, particularly in the residential and industrial sectors, this situation could result in an increase in prices, making gas less accessible for certain users.
Finally, this transition changes the balance of the Indian gas market, where subsidized domestic gas plays a crucial role in stabilizing prices. The increase in RLNG use risks redefining this dynamic in the months to come.
