High prices seen robbing gas of its edge among fuels in India

Global spot prices of natural gas have been on a rally since August 2020, after touching an alltime low of $2 per mmBtu in April that year.

The gas market has tightened since then, due to a combination of robust growth in demand as economies recover from the lockdowns, extreme weather episodes that have increased gas consumption, and tighter-than-expected supply as a series of outages in the US hampered gas production and export capacity.

The constraints, coupled with an unusually cold winter in Europe, pushed prices to a decadal high of over $30 per mmBtu in the fourth quarter of 2021.

Coming in this milieu, an escalation in Russia-Ukraine tensions can only worsen things in fiscal 2023. Although prices in Europe eased slightly in January 2022 to $22-23 per mmBtu from peaks logged in November and December, coming months are expected to see more volatility amid heightened geopolitical tensions — especially between Russia and Ukraine — and linkeduncertainty, which will keep prices elevated (though lower than last year’s average).

Also, Germany paused the certification process for the Nord Stream 2 pipeline in November, as a result of which we do not expect any significant increase in supply from Russia to Europe. With demand from Europe holding steady, there would be upward pressure on prices.