Indian gas consumption is up sharp 15% yoy to ~185 mmscmd in FY2024TD. Apart from the increased HPHT gas production, LNG imports have been markedly higher. After multi-year declines, gas offtake by the power sector picked up due to seasonal factors. New fertilizer capacity also fully ramped up. With lower prices, oil to gas switch demand also recovered. But growth will likely trickle now. CGDs segment growth has considerably slowed, and fertilizer may not need much additional LNG.

Gas consumption up strongly in FY2024

Several stars have aligned to push Indian gas usage to record highs this year. KG-D6 production has ramped up to ~30 mmscmd. Most of new fertilizer capacity that has been gradually commissioning is also fully operational now. After five years of decline, gas offtake by the power sector recovered temporarily due to seasonal factors. Also, with much lower LNG prices (versus past two years), oil-to-gas arbitrage demand recovered in refining and other industries.

CGD demand growth has considerably slowed

While gas volumes are up strongly in FY2024, we note that from 2012 levels (previous KG-D6 production peak), gas consumption has grown at below 1% CAGR. With policy focus, priority gas allocation and low APM prices, over 2012-22 CGDs' gas demand was up 2.2X (8% CAGR), whereas growth was weak for most other key demand segments. With rising APM shortfall and higher APM prices (new formula did not bring much relief), CGD's pricing advantage has withered and growth has considerably slowed (~3% CAGR over FY2022-24E).

Medium-term volume outlook weak; LT outlook even weaker

- CGDs. In our view, with new APM price formula and rising shortfall, CGDs' gas cost will keep rising. Despite several new CGDs starting operations, CGDs' demand growth will be weak. For other consuming segments, outlook is weaker.

- In power sector, APM gas allocation keeps declining. Also, at current APM/LNG prices, gas-based generation has limited offtake in merit-order dispatch regime. Volumes will likely remain weak, unless there is policy support (such as for offsetting impact of renewable power intermittency issues).

- In fertilizer, no new gas-based fertilizer capacity is planned. Rather with policy focus now on green hydrogen, there will be mandates soon to switch to green hydrogen usage, with entire fertilizer capacity moving to green H2 over LT.

- For other segments, gas usage will continue to be dependent on price arbitrage of liquid fuels versus gas. With not much incremental domestic gas, and relatively tighter global LNG markets, we believe the pace of switch to gas will remain slow. Also, similar to fertilizer, there will be rising policy focus to switch to green H2 usage instead of gas in the longer term.

Remain cautious on gas names

Gas consumption in FY2024 has been higher versus our earlier estimates. However, with CGD sector demand growth considerably slower, the growth outlook remains weak. We remain cautions on gas utilities.