Commodities

Gas market to grow at 9% but CNG segment faces uphill battle

Our Bureau New Delhi | Updated on July 05, 2021

Consumption of natural gas in India is expected to increase by 25 bcm till 2024

The consumption of natural gas in India is expected to increase by 25 billion cubic metres (bcm) till 2024 at an average annual growth of 9 per cent, according to the International Energy Agency (IEA) forecast on Monday.

“While India’s short-term outlook is clouded by a devastating second wave of Covid-19 infections, which had the most disruptive effect in April and May 2021, the prospects for continued growth in gas demand remain strong in the medium term, aided equally by expanding infrastructure and a highly supportive policy environment,” the IEA said in its gas outlook.

Also read: Rebound in global gas demand threatens international climate targets, says IEA

Nearly 40 per cent of India’s net demand growth is expected to come from industrial consumers, while the remaining growth is roughly evenly split between the residential, transport and energy sectors, the IEA said. “Gas use for power generation is projected to remain almost flat throughout the forecast period, as most of the country’s stranded gas-fired fleet is uncompetitive without subsidies or an outright collapse of international gas prices.”

CNG margins to thin

India’s programme to expand CNG access is the most ambitious globally, the outlook said. “India will add another 4,500 CNG stations to its current network of 2,700 over the next four years as part of the ongoing rollout of city gas infrastructure. It is projected to more than double India’s CNG demand between 2020 and 2024.”

However, the CNG segment is also staring at headwinds of upward revision in regulated gas prices.

“Indraprastha Gas Ltd and Mahanagar Gas Ltd face the steepest uphill battle ever,” Motilal Oswal Financial Services said in a Monday note. “Domestic gas prices have risen. In the next scheduled revision in October, we expect domestic APM gas prices to be raised to $3.1/mmBtu from $2/mmBtu, the highest ever increase. If the current trend in [benchmark] gas prices remains, we may see another hike in April 2022.”

Another concern of rising costs for the CNG segment is the demand from oil marketing companies to hike commissions, Motilal Oswal said.

Imports to rise

India consumed nearly 61.54 bcm of gas during 2020, more than half of which was imported as LNG, according to the Ministry of Petroleum and Natural Gas. “In 2021, India’s gas consumption is expected to increase by 4.5 per cent, but the economic fallout from the ongoing second wave and high LNG prices present downside risks to our forecast,” the IEA said.

In the first half of 2021, India’s LNG imports dropped by 3 per cent year-on-year, as record-high spot prices in January and a devastating second wave of Covid-19 in April and May dampened LNG demand, it added. However, “India’s import growth is expected to re-accelerate from 2022 as the post-Covid gas demand recovery coincides with a slowdown in production growth,” the outlook added.

Published on July 05, 2021

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