Indian gas utilities sector is returning to tentative state of normalcy, after facing volatility for the last two years, said rating agency ICRA.
The gas consumption in India is expected to grow by 6-7 percent YoY in FY24 over a low base, supported by softer LNG prices and an uptick in the domestic gas production, the rating agency said in a press release.
“The gas offtake by the domestic market is supported by softening LNG (liquified natural gas) prices, uptick in domestic gas supplies, and a regulatory push by the government. The domestic production is projected to witness healthy growth in FY2024, primarily from the Krishna-Godavari Basin, which is likely to keep the reliance on LNG in check,” said ICRA.
Soft LNG prices is a positive for Indian consumers, however, ICRA also pointed out the potential risks to price volatility.
“Soft LNG prices bode well for the Indian gas consumers. However, event risks persist, like an extended labour strike in Australian LNG facilities and a colder-than-expected winter in the northern hemisphere, which could result in volatility in the spot prices,” said Sabyasachi Majumdar, Senior Vice President and Group Head, Corporate Ratings, ICRA.
Global LNG prices moderated in 2023 after achieving life-time highs in 2022, aided by changes in demand patterns across the key consuming nations. The LNG demand from China has been subdued amid an economic slowdown, rising pipeline flows from Russia, and increasing use of coal.
ICRA expects the demand from the industrial sector in India to witness a healthy uptick amid soft LNG prices and increasing domestic gas production. The city gas distribution (CGD) and the fertiliser sectors will continue to drive the gas demand growth owing to favourable policy support, said the rating agency.
The CGD sector has benefitted from the implementation of the Kirit Parikh Committee recommendations in April 2023, resulting in the lowering of domestic gas prices, thereby improving the cost economics for CNG and PNG(d) vis-à-vis alternate fuels, it added.
“The fertiliser sector will continue to remain the largest consumer, supported by ramp-up of new fertiliser plants that were commissioned in H2 FY2023. The demand from the CGD sector is underpinned by the CNG segment, which remains robust owing to the strong economic advantage over alternate fuels, a testament of which is the strong uptick in CNG vehicle sales in the last couple of years,” said Majumdar.
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