India Ratings and Research (Ind-Ra) has maintained a neutral outlook for the oil and gas sector for FY25 driven by a stable demand for petroleum products, declining-yet-healthy gross refining margins yielding healthy refining, continued high crude oil prices and increasing crude and gas production. 

The agency expects the credit profile of downstream companies to remain stable during the year, driven by a stable demand for petroleum products, declining-yet-healthy gross refining margins yielding healthy refining EBITDA and reduced crack spreads lowering marketing losses. OMCs have kept retail prices relatively stable despite the sharp movements in crude price and spreads to as ensure stability in margins, which has also led them to earn higher margins in some periods, compensating for lower margins/losses in others. The trend is likely to continue in FY25. Stable demand for petroleum products in India has led to expansion of Refinery Capacity in the country. Total refinery capacity addition in India is expected at 24 mtpa by FY26. Ind-Ra expects OMCs’ debt to increase in FY25 to fund the planned capacity addition and modernisation. However, given the expectation on margins, Ind-Ra expects the leverage position of OMCs to remain comfortable over FY25. 

Ind-Ra opines EBITDA for standalone petchem players and petchem EBITDA for integrated refiners will start showing signs of improvement (the same is visible from 4QFY24) after being subdued for FY23-FY24. However, the recovery could be in low single digits during FY25 owing to the moderate petrochemical spreads arising from the oversupply created by the consistent capacity additions in China over FY19-FY24. 

Ind-Ra opines upstream companies will continue to benefit from the elevated crude oil prices. Oil prices continue to be impacted by the geopolitical conflicts and production cuts announced by OPEC+ countries. Ind-Ra expects the GoI to continue tweaking the special additional excise duty rates which have been applicable from 1 July 2022, to bring the net realisation level to USD70/bbl-80/bbl (breakeven cost of upstream companies is estimated at USD40/bbl). This coupled with an increase in the production of crude and natural gas is expected to improve EBITDA for upstream oil and gas companies in India. 

Ind-Ra expects the CGD business to remain healthy in FY25, in view of the favourable regulatory policies, decline in prices of LNG, negative working capital cycle and demand creation in new geographical areas (GAs). The total consumption of natural gas in India increased during FY24 on account of the increase in domestic production and softening of LNG prices, leading to an increase in the import of LNG. Consumption of LNG increased in the fertiliser, power and CGD sectors during the year. Ind-Ra expects gas consumption to increase during FY25 on account of an increase in the penetration of CGD networks, a continued softening of LNG prices making gas-based power plants commercially viable (India having 25GW of gas-based power plants) and an increase in demand from other sectors such as refinery and petrochemicals. However, this increase in consumption will hinge on the price of crude oil as most of India’s LNG purchase is in the form of long-term contracts linked to crude price.