City gas distribution, fertiliser sector to drive gas demand: CRISIL report

Gas demand is expected to grow at 3.5% CAGR between fiscals 2018 and 2023 to 191-193 MMSCMD. The main push for incremental demand is expected to come from the fertiliser and city gas distribution (CGD) sectors, ratings agency CRISIL Research said in its latest report.

The conversion of naphtha-based urea plants, commissioning of new capacities under the New Urea Investment Policy, and the revival of urea plants are projected to drive gas demand from the fertiliser sector, the agency noted.

Moreover, regulatory push for CGD, including priority allocation of domestic gas for the compressed natural gas and domestic piped natural gas (PNG) segments, connecting more cities and districts to the gas pipeline infrastructure, along with a ban of polluting fuels such as fuel oil and petcoke in Haryana, Rajasthan and Uttar Pradesh will push demand upward, the report said.

The industrial PNG segment is likely to see a shift from alternative fuels as well, because of better competitiveness in comparison with liquefied petroleum gas and the ban of fuel oil in the northern region. The ban on polluting fuels would be extended to other states to combat environmental-related issues and growing awareness towards it, the ratings agency said.

On the other hand, demand from the power generation sector is expected to be subdued or only marginally improve, owing to accessibility and affordability challenges. Poor competitiveness of gas vis-à-vis coal and renewable sources, along with weak finances of power distribution companies, is expected to limit the usage of gas by power generators.

Reintroduction of regulatory reforms, along with improved domestic gas supply, is necessary to revive gas demand from the power sector, the agency said.

It is noteworthy that although gas demand by the power sector increased 3.5% on-year to 32.9 MMSCMD in fiscal 2018, from 31.8 MMSCMD in fiscal 2017 (despite the absence of any government policy support for the sector), this was most likely because of lower spot prices of LNG, it added.

In a recent development, there has been a push to restart the LNG subsidy scheme to supply gas to stranded gas-based power plants. Along with the subsidy proposal, gas supply from newly commissioned fields of ONGC would positively impact the sector from fiscal 2020, the report said.

Shekhar Ghosh is consulting editor, Indoasiancommodities.com. He has edited and written for publications like Business India, Business Standard, Business Today, Outlook and many other international publications. He can be reached at shekhar.ghosh@indoasiancommodities.in.

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