Natural gas demand falls amid COVID-19; production hit too, but may recover as economy unlocks

The domestic natural gas consumer demand and production took a hit during April-August period this year with the coronavirus pandemic hitting the country. The production fell sharply in FY21 as compared to the comparable period last year, a report said on Wednesday. “Cumulative fall in production is mainly due to restricted/ no gas off take by consumers due to COVID-19 situation and shutdown at consumers’ end,” a CARE Ratings report said. Further, environmental issues, which resulted in bandhs/blockade by local people with concerns associated with Baghjan well blast, also took a toll on cumulative production. While the domestic natural gas production declined 1% last year, it witnessed a slide of 13.2% during FY21 (April-August).

However, with the resumption of economic activities in the country, it is expected that the situation for the natural gas industry will improve soon. The current levels, however, remain below the pre-COVID figures. 

The consumption of natural gas in entirety fell sharply by 9.5% on an on-year basis during FY21. Natural gas is used as a fuel (energy) and as a feedstock (non-energy) by the respective end user industries. In August 2020, the imports of LNG has increased by 5.4% and consumption has declined by 1.8% on a yearly basis. It is expected that the gross production of domestic natural gas is to fall by 10.6% during the current financial year. This, if it materializes, will be a considerable contraction in production when compared to previous year figures of 0.7% during FY19 and 5.9% during FY20.

What drives natural gas demand?

In India, the demand for natural gas in the domestic market is largely driven by the fertilizer (28%), power (23%), CGD entities (16%), refinery (12%) and petrochemicals (8%) industries. However, there has been a fall in power generation, drop in the demand for CNG refuelling, fall in refineries and fall in petrochemical production during the April to August time period, with the exception of urea production and demand from PNG customers.