New Delhi,  The domestic demand for natural gas is seen rising by 12-14 per cent next fiscal, despite prices remaining high for the past several months, said ratings agency Crisil.

According to it, this trend is supported by economic recovery and lower-than-usual inventories in key European consumption centres.

Besides, Russia's invasion of Ukraine, which began in February 2022, drove already-elevated gas prices even higher, Crisil said.

At present, Russia accounts for 17 per cent of global gas output, and its pipeline via Ukraine caters to more than a third of European gas demand.

The agency said that the heightened supply uncertainty because of the ongoing conflict and Europe's intensifying efforts to reduce dependence on Russian gas by importing more LNG will keep gas prices high at least in the near term.

Already, the US spot gas prices are 50 per cent above the long-term average and long-term liquefied natural gas (LNG) contracts, benchmarked to crude oil, are 30-40 per cent higher than usual.

Similarly, the Asian spot LNG prices are at an elevated level, at above $30 per mmbtu (metric million British thermal unit), which is more than 4 times the past seven-year average.

India will feel the heat, too, as domestically produced gas, which meets half of the total gas demand, is linked to prices at international gas trading hubs.

The balance demand is met by term and spot LNG imports.

"The impact of higher global gas prices is not yet reflected in the domestic prices, and will only be visible from April 2022. This is because the domestic gas price is determined and fixed biannually using the 'Administered Pricing Mechanism'," said Naveen Vaidyanathan, Director, Crisil Ratings.

"This is based on average international gas prices in the preceding 12-months, and calculated with a lag of one quarter. The price of domestically produced gas is expected to average $6 per mmBtu next fiscal.. around 2.5 times the average price of $2.3 this fiscal."

As per the agency, while the price of LNG is expected to moderate from current highs, it will still be more than the average seen this fiscal.

"Healthy growth in downstream sectors, particularly the city gas distribution (CGD) and fertilisers together accounting for almost half of domestic gas consumption, will drive growth in domestic gas demand next fiscal, despite the high prices. Demand has already reached the pre-pandemic level this fiscal.

"Demand from CGD segment will be driven by increasing compressed natural gas (CNG) and piped natural gas (PNG) penetration."

In addition, the agency said that CNG stations are expected to increase to 5,000 next fiscal from 3,700 at present, and domestic PNG connections to 1 crore from 85 lakh as of November 2021.

"Demand from the fertiliser sector, already largely insulated because of the government subsidy to ensure cost pass-through for manufacturers, will be further supported by capacity ramp-up and conversion of some existing capacity from naphtha to natural gas as a feedstock," Crisil Ratings said.

"Other downstream sectors such as refining and petrochemicals will also exhibit healthy increase in demand after muted growth this fiscal."