Pricier city gas to temper volume growth to 8-10% this fiscal: Crisil
PremiumCity gas players may now face margin headwinds as they balance between protecting margins and driving volume growth
New Delhi: High gas prices are likely to moderate the volume growth of India’s city gas consumption, according to a Crisil report.
Recently, the price of natural gas has been hiked by 40% to an all-time high of $8.57/mBtu (million British thermal unit) for the second half of the current fiscal, based on the administered pricing formula (APM). This increase in gas prices is expected to lift the prices of piped natural gas (PNG) and compressed natural gas (CNG).
“Expected sustenance of these high gas prices will moderate India’s city gas consumption volume growth to 8-10% this fiscal versus an earlier projection of 20-25%," the rating agency said in a note today.
The current worth enhance has adopted a 110% enhance already relevant for the primary half. The APM gas is supplied largely to compressed natural gas (CNG) and domestic piped natural gas (PNG) consumers, who contribute to 50% and 10% of city gas volume, respectively.
The price for the balance 40% of city gas volume -- supplied to industries-- have also surged and remain elevated amid the protracted Russia-Ukraine conflict. Over the past 12 months, the average price of liquefied natural gas (LNG) contracts, benchmarked against crude oil prices, rose 45% to $14.5-15.0 per mmbtu, while spot LNG prices have surged 150% to $38-40 per mmbtu.
Naveen Vaidyanathan, Director, Crisil Ratings stated, “Elevated gas costs are anticipated to scale back demand for industrial PNG by 10-12% this fiscal, as price-sensitive industrial customers change to different fuels-akin to propane and gasoline oil. Demand for residential PNG, though extra resilient to increased costs, may additionally develop a modest 2-5% as employees return to workplace with the Covid-19 pandemic subsiding. CNG demand is still expected to rise 25-30% on the back of an expanding network of CNG stations to new geographic areas and higher sales of factory-fitted CNG cars, despite narrowing price differential with competing petrol and diesel."
“Overall, we expect full year demand to moderate to 8-10% this fiscal amidst a surge in gas prices," he added.
To counter, city gas distributors have been taking successive worth hikes since April 2021 to handle their price pressures. CNG costs have elevated by an enormous 75% as costs of competing crude oil-linked petrol and diesel have additionally elevated.
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“This may change," stated Joanne Gonsalves, Team Leader, Crisil Ratings, including, “City gas players may now face margin headwinds as they balance between protecting margins and driving volume growth. While we expect margins to fall from the levels of ₹8.82 per scm (standard cubic meter) seen in the first quarter of this fiscal, however for the full year, these may still be healthy at ₹8.0 per sem-almost flat on year and 12 higher than the last 5 year average.".
Decent volume growth and healthy margins will drive an improvement in cash accruals this fiscal. This, along with robust balance sheets and low sector gearing of 0.1x as of 31 March, 2022, will support the industry’s plans to further expand its network, especially in the newer geographic areas.
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