India’s Gas Demand At Inflection Point, To Rise By 66% In 5 Years

India's domestic gas demand is at an inflection point and is expected to see a 66 percent volume growth over the next five years, primarily driven by sustained weak Liquified Natural Gas prices, as per a report.

Gas demand is expected to rise from 148 million standard cubic meters per day in 2018-19 to 250 million standard cubic meters per day by the fiscal year ending 2025, Elara Securities said in a report.

The bulk of the incremental demand will come from city gas distribution operations being rolled out in 400 districts. As much as 52 mmscmd of additional demand will come from retailing of Compressed Natural Gas to automobiles and piped natural gas to industries and households, it said.

Another 35 mmscmd is to come from the power sector and 15 mmscmd from fertilizer plants.

"Domestic gas demand is at an inflection point and we expect 66 percent volume growth or 102 mmscmd over the next five years, given an environment of sustained weak LNG prices, owing to a global supply glut and muted demand from China, which has been aggravated by the coronavirus outbreak," it said.

LNG delivered cargo prices in western India have hit an all-time low of about $2.5 per million British thermal unit, a rate which should propel consumption.

LNG at this rate, it said, is competitive or even cheaper at 53 out of the 78 polluted industrial clusters in the country that use imported coal. "This, we believe, will drive coal replacement demand among industries."

"We expect LNG prices to remain weak over the next 2-3 years, due to an estimated 47 million tonnes of new LNG supply addition over the calendar year 2020-21 and subdued China LNG demand growth on rising local gas production and commissioning of 104 mmscmd Russia-to-China gas pipeline," it said.

Giving a breakup of its estimation of additional demand, Elara Securities said 24 mmscmd gas is likely to be consumed by industrial city gas distribution and another 28 mmscmd by non-industrial CNG, household and commercial piped gas.

"In other words, this would serve an additional 3.8 million CNG vehicles, 33 million households, 0.3 million commercial units and 42,840 industrial units," it said.

The recent crash in liquefied natural gas prices comes at the time when the government is looking to push for greater use of environment-friendly fuel in the country. It wants the share of natural gas in the country's primary energy basket to rise to 15 percent by 2030 from current 6.2 percent.

Towards that objective, sector regulator Petroleum and Natural Gas Regulatory Board gave out CGD licenses for 232 geographical areas (spread across 407 districts in 27 states) in two bid rounds in the last two years. This would service 70 percent of India's population.

Also, the government wants states to cap VAT on CNG and LNG at 5 percent, lower road taxes for CNG and LNG vehicles at par with that of electric vehicles and form a single clearance window for CGD projects.

"In our view, these steps will unlock 52 mmscmd of new gas demand from overall CGD over FY20-25," the report said.

It went on to estimate that gas transmission volume will increase by 32 mmscmd or 83 percent for Gujarat State Petronet and by 70 mmscmd or 66 percent for GAIL over H1FY20-FY25E. Among listed CGD firms, Gujarat Gas, Indraprastha Gas and Mahanagar Gas would see gas volume growth in the range of 72-162 percent.