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India’s Oil Products and Natural Gas Market

India’s diesel reforms initially succeeded in curbing demand but consumption soon recovered after Narendra Modi’s election as renewed economic optimism and consumer confidence offset higher prices. Consumption of other oil products is bound to fall in the coming years, though, due to fuel switching to natural gas, especially in the power-generation sector. Under the natural gas pricing reform, promoted by the previous government, the new gas pricing formula would have roughly doubled the domestic natural gas price. Whilst this hike would have initially hampered domestic gas consumption, natural gas would still be cheaper than oil products for industry (e.g. power generation and ammonia/urea production), thus spurring upstream investment and LNG imports. Nevertheless, decisions over upstream and LNG investments will be made – if at all – after the rollout of the gas pricing reform. Until then, we expect domestic gas production to languish, and LNG imports to be priced out of the market as importers are forced to buy at international prices and sell at a loss on the domestic market.

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by Alexander Wilk // 11 September, 2014

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