Indian gas utilities to invest Rs. 30,000 - Rs. 45,000 crore in Capex: ICRA

Indian gas utilities to invest Rs. 30,000 - Rs. 45,000 crore in Capex: ICRA

Domestic consumption to grow 6-7% YoY supported by increase in the domestic gas availability and soft spot LNG prices

  • By ICN Bureau | September 21, 2023

Indian gas utilities are planning to invest Rs. 30,000 - Rs. 45,000 crore on Capex for the next three years of which Rs. 18,000 - Rs. 21,000 crore to be invested in pipeline and Rs. 12,000 - Rs. 24,000 crore in City Gas Distribution (CGD) says ICRA.  

Global liquified natural gas (LNG) prices moderated in CY2023 after achieving life-time highs in CY2022, 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. The EU demand stabilised after the initial peak, owing to mild winters, austerity measures, and a weak economic environment. The demand from Japan and South Korea was also tepid owing to their increased focus on the use of renewables and nuclear power.

On the other hand, the US domestic demand has also witnessed subdued growth, and with healthy gas inventory levels, the Henry Hub prices have moderated.

According to Sabyasachi Majumdar, Senior Vice President and Group Head, Corporate Ratings, ICRA Ltd., “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. Given the lack of investments in the LNG projects over the past few years, incremental availability of LNG will be capped with major capacity additions expected in FY 2025-26. Meanwhile, structural changes are underway on the demand front, such as the increasing focus of the EU on renewable energy, a shift towards coal usage by China, and increasing reliance on nuclear power by Japan and South Korea. The LNG offtake by South Asian countries remains highly price sensitive.”

Akin to the global gas markets, the Indian gas utilities sector, after facing significant volatility in prices and issues on the availability of LNG over the last two years, is now returning to a tentative state of normalcy. The gas offtake by the domestic market is supported by softening LNG 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. The city gas distribution (CGD) and the fertiliser sectors will continue to drive the demand growth owing to favourable policy support. ICRA expects the demand from the industrial sector to witness a healthy uptick amid soft LNG prices and increasing domestic gas production. 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.

Commenting on the sector, Majumdar said, “The gas consumption in India is expected to grow by 6-7% YoY in FY2024 over a low base, supported by softer LNG prices and an uptick in the domestic gas production. 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.”

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