Nord Stream 1 is an 11-year old, 1200-km pipeline that goes from Russia, under the Baltic Sea, taking Russian gas to Germany. Last month, numerous leaks – apparently caused by explosions – drove supplies to an almost complete halt.
The timing is inopportune, as residential and commercial heating by gas is required to fend off the oncoming winter. Nord Stream 2 is not yet operational. With Europe having built up its gas reserves and relatively warm weather so far, it should be able to see this winter through but the anxiety is about next year, as if it has dip into reserves if the winter happens to be harsh.
One source that could help is a not-so-little field in the Netherlands, and that discussion is a non-starter.
Groningen in the Netherlands has a gas field that began operations in 1963, but starting in the 1980s, the region has seen numerous earthquakes – minor enough to avoid large damage but big enough for local buildings to develop cracks. The Dutch government had earlier said it would shutter the field in response to local dissent. The closure date was also advanced to 2022 from 2030.
India’s domestic gas price is determined from the average of 4 global indices, viz, US Henry Hub, UK National Balancing point, Canada’s Alberta and Russian gas.
From pre-pandemic times, the average domestic price of gas has risen from $5.08/MMBTU to $11.62 and CARE Edge Director of Ratings, Sudhir Kumar, estimates this is bound to rise again when the six-monthly reset takes place for April-September 2023.
India imported about 63.9 bcm in FY22, about 3.1 bcm more than in the previous year. Global production is estimated to decline from 4,109 bcm in calendar 2021 to 4,089 bcm in 2022.
The situation would become challenging for the govt. unless the formula for determining domestic gas price is reviewed, he says. Till then, the govt. has to bear the higher subsidy burden on fertilizer – in the manufacture of which natural gas is used – as well as for the LPG sector.
