• HDFC
• 03 Sep 2018
• Knowledge Centre

HDFC, Tester

Recent trends reflect that an increasing number of initiatives have been taken by the Government to encourage the consumption of natural gas in the country. These initiatives include granting authorization to companies to enter the business across geographies.

 

The fallout of this has been the burgeoning of the City Gas Distribution (CGD) network in the country. Natural gas consumption in the country’s CGD market is estimated to cross 18.28 BCM by 2030, owing to a growing demand from the domestic, commercial and industrial segments.

 

Good projections

 

Going forward, this demand is expected to increase further. Greater environment-consciousness has led to a shift in the choice of fuel used – from diesel/petroleum to natural gas. Mr Rahul Prithiani, Director, CRISIL Research has been quoted in a report by the credit-rating agency as saying, “The Supreme Court’s decision banning polluting fuels such as fuel oil and petcoke (petroleum coke) for industrial use in some northern states has been favorable for LNG demand. The Gujarat High Court has also tightened norms on the use of coal gassifiers by ceramic companies in Morbi and Wankaner. These moves resulted in a 20% Year over Year growth in LNG imports in the first half of FY18.”

 

The Government is distributing subsidized gas cylinders in both urban and rural geographies to spur demand across all income segments – the middle class, lower middle class and below poverty line.

 

Examples of this can be seen in the fact that companies like IGL, Gujarat Gas, Mahanagar Gas, among others, are not only expanding their footprint in existing markets, but also focusing on foraying into new geographies.

 

Mr Abdul Karim, Research Analyst, HDFC securities says “Taking into consideration the favourable demand environment, CGD companies have started investing in expansion, like Indian Oil Company plans to invest Rs 20,000cr in city gas distribution projects over the next 5-8 years.”

 

Future prospects

 

The CGD market in the country is forecasted to reach 20,700 MMSCM by 2030.This year, CGD sales in the country were dominated by the CNG segment, owing to stringent environmental regulations and the increased penetration of CNG-fitted vehicles. Backed by the thriving PNG and CNG segments, India’s CGD network is anticipated to witness robust expansion during this period.

 

According to a CRISIL report, the recent 9th round of the auction of CGD licenses included 86 geographical areas (GAs) in 174 districts, covering 29% of India’s population, as compared to cumulative 56 GAs awarded in the previous 8 rounds in the last 10 years. The new GAs that were on offer included Chennai, Coimbatore, Visakhapatnam, Aurangabad and Bhopal, which have good demand potential.

 

CGD players are also favored when it comes to gas allocation. For example, in the last two years, while India imported ~45% of its natural gas requirement, the allocation to CGD was given priority.

 

According to the report, in the medium term, LNG demand will be supported by the development of gas infrastructure in the largely untapped eastern region.
Mr Karim says, “Increasing natural gas demand from commercial, industrial, domestic and automobile end users could bring growth opportunities for CGD companies going forward. With stringent environmental regulations and the rapidly-growing penetration of CNG-fitted vehicles in India, the country’s CGD network is expected to witness robust expansion in the future.

 

We expect healthy growth going ahead, given the favourable demand and supply situation, Government initiatives, and companies’ ongoing and future expansion plans. However, poor industrial growth, higher crude oil prices and any delay in expansion plans could hit the industry in the near term.”