Mumbai: With the cost of natural gas increasing by a steep 40 per cent from this month on top of a steeper 110 per cent hike during April-September, volume growth is seen more than halving to 8-10 per cent this fiscal from the earlier forecast of around 25 per cent, says a report.
Rating agency Crisil sees industrial consumers switching to other cheaper fuels leading to a demand compression of 10-12 per cent this fiscal, while piped cooking gas demand may fall to 8-10 per cent from an earlier projection of 20-25 per cent as prices since the beginning of this fiscal skyrocketed by 150 per cent.
Based on the administered pricing formula, the oil ministry had on September 30 increased price of natural gas by 40 per cent to an all-time high of $8.57 per mmbtu (metric million British thermal unit) for the second half of the current fiscal. And this hike was after a massive 110 per cent jack-up in the price for the first half ending September.
Gas under the administered pricing mechanism is supplied largely to CNG and domestic piped natural gas consumers, who contribute to 50 per cent and 10 per cent of city gas volume, respectively. The price for the balance 40 per cent of city gas volume, supplied to industries, have also surged and remain elevated since the Ukraine war.
Over the past 12 months, the average price of liquefied natural gas (LNG) contracts, benchmarked against crude oil prices, rose 45 per cent to $14.5-15 per mmbtu, while spot LNG prices have surged 150 per cent to $38-40/mmbtu.
As prices are expected to remain elevated for mid-term given the lingering conflict in Ukraine, city gas consumption volume growth will moderate 8-10 per cent this fiscal massively down from the earlier projection of 20-25 per cent, Crisil said in a note based on an analysis of five large city gas distributors (Gujarat Gas, Indraprastha Gas, Mahanagar Gas, Adani Total Gas and Maharashtra Natural Gas) which account for almost 70 per cent of the industry volume.
According to Naveen Vaidyanathan, director at the agency, elevated gas prices are expected to reduce demand for industrial PNG by 10-12 per cent this fiscal, as price-sensitive industrial consumers switch to alternative fuels such as propane and fuel oil. On the other hand, demand for residential PNG, which is more resilient to higher prices, may grow at a much lower 2-5 per cent as people return to offices.
CNG demand, on the other hand, is still expected to rise 25-30 per cent on the back of an expanding network of CNG stations, despite narrowing price differential with petrol and diesel.
It can be noted that the number of CNG stations has increased from 3,101 in March 2021 to 4,664 in July 2022, while the number of new CNG vehicles registration grew to 1.97 lakh until September 30, increasing sharply from 1.65 lakh in the entire 2021, despite rise in prices.
Even though utilities have been hiking prices, they are not fully passing on the hike to end consumers, which will lead to margin compression for them. For instance, CNG prices have gone up by only 75 per cent since April.
Joanne Gonsalves of the agency says 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 Rs 8.82 per SCM (standard cubic meter) seen in the first quarter of this fiscal to Rs 8/SCM" and still remain 12 per cent higher than the last five-year
average.