India's gas output seen up 10-15% in FY23: Crisil
India’s natural gas output in the 12 months to March 31, 2023 (FY23) is expected to rise by 10-15%, Naveen Vaidyanathan, director, Crisil Ratings told NGW.
“We do see gas production going up significantly in FY23. Indian gas output has been stagnant for many years but there was a marked improvement in FY22. This fiscal too we expect a jump of anywhere between 10-15%,” Vaidyanathan said.
According to the latest government data, cumulative natural gas production during the 11 months of FY22 was 31.13bn m3, up 19.8% yr/yr. Official data for March 2022 and the full financial year is expected by April end.
Vaidyanathan said that the sharp rise in administered gas prices will benefit gas producers like Reliance and state-owned ONGC. New Delhi more than doubled the regulated wholesale prices of locally produced natural gas with effect from April 1.
For the April 1 to September 30 period, the price paid to most domestic natural gas producers will be $6.1/mn Btu, up from $2.9/mn Btu during October 1-March 31 period. The price of locally-produced gas is set every six months by the government through a formula linked to global rates.
“Upstream would the key beneficiary of the latest hike in administered prices. Players like Reliance, ONGC and Oil India will see an increase in realisation flow through to their bottom line,” Vaidyanathan said.
Gas demand seen up 12-14% in FY23 despite high prices
Domestic demand for natural gas is seen rising 12-14% in the current fiscal, despite prices remaining high for the past several months because of economic recovery and lower-than-usual inventories in key European consumption centres, Crisil Ratings said.
Healthy growth in downstream sectors, particularly the city gas distribution (CGD) and fertilisers ― together accounting for almost half of domestic gas consumption ― will drive growth in domestic gas demand in FY23, despite the high prices. Demand reached the pre-pandemic level in FY22, Crisil Ratings said.
Demand from the CGD segment will be driven by increasing compressed natural gas (CNG) and piped natural gas (PNG) penetration. CNG stations are expected to increase to about 5,000 by the end of FY23 from approximately 3,700 at present, and domestic PNG connections to 10mn from 8.5mn as of November 2021.
“The double-digit growth in gas demand will also be supported by continued competitiveness of gas against substitute fuels. While gas prices have increased, so have crude oil prices. Hence, gas will remain 5-40% cheaper compared with substitutes such as petrol, diesel, LPG, furnace oil and naphtha,” said Ankit Kedia, associate director, Crisil Ratings.
Demand from the fertiliser sector, already largely insulated because of the government subsidy to ensure cost pass-through for manufacturers, will be further supported by capacity ramp-up and conversion of some existing capacity from naphtha to natural gas as a feedstock, Crisil Ratings said. Other downstream sectors such as refining and petrochemicals will also exhibit a healthy increase in demand after muted growth in FY22.