Industrial costs in India started going up because of rising prices of liquified natural gas (LNG) late last year, which was months before Russia's invasion of Ukraine. Since the war broke out, India has defied global pressure to import Russian crude at discounted rates to tackle inflation. But despite saving money on oil, the country has been forced to pay double for LNG, since Russian gas has vanished into thin air.
European winter leaves India out in the cold
India’s largest gas distributor GAIL paid record high rates of $40 per million British thermal units for three LNG shipments last week. It had to do so because its supplier Gazprom Marketing and Trading Singapore, has diverted LNG to Europe, which is facing an impending gas shortage this winter. GMTS is a subsidiary of Gazprom Germania, which was owned by Russia’s state-owned gas company Gazprom. But the parent firm lost ownership of Gazprom Germania after being hit by sanctions against Russia.
Now 36 cargoes with 2.5 million tonnes of LNG which GAIL was supposed to receive from GMTS in 2022, are suddenly unavailable. This means that the state-owned distributor will have to impose rationing on LNG for industries, among which the power sector will be hit hard. High LNG rates had already forced Indian units generating 25GW of power from gas to shut down in July. The government is also exploring CNG imports to reduce the dependence on LNG, but due to lower energy density, India will need an exporter within 1500 nautical miles.
The only way to prevent a power shortage
Liquified Natural Gas is measured in million British thermal units, which indicate the heat content of a particular fuel or energy source. It has been used for heating homes, cooking and power generation, along with production of fertilisers, medicines and paints. It can also be used for commercial vehicles, and the rationing has hit weeks after India’s first LNG-powered truck was launched. The gas has also been used by India as an alternative to coal for averting a power crisis in the country, and rationing it will also affect those plans.
At the beginning of the year, Crisil had predicted a 17 per cent rise in demand for LNG in FY23 from the city gas and fertiliser industries, despite a rate hike. But that was before Russia’s invasion of Ukraine in February, and the gas crisis it triggered for Europe and in India. Now GAIL is planning to prepone shipments of LNG from the US and the Middle East.
