India invites bids for 65 city gas licences
The Indian downstream regulator, Petroleum and Natural Gas Regulatory Board (PNGRB), late September 17 invited bids for 65 geographical areas under the 11th city gas distribution bidding round.
Bids for these 65 areas are due on December 15. At present, there are 228 areas authorised by PNGRB in 27 states and union territories covering approximately 53% of the country’s area and 70% of its population. In the 10th bidding round, 50 areas were authorised for the development of the city gas network.
The 65 areas under the 11th round cover 208 districts in states of as Andhra Pradesh, Assam, Bihar, Chhattisgarh, Himachal Pradesh, union territory of Jammu and Kashmir, Jharkhand, Karnataka, Kerala, Madhya Pradesh, Maharashtra, Odisha, Punjab, Rajasthan, Tamil Nadu, Telangana, Tripura, Uttarakhand and Uttar Pradesh. This round is the biggest ever in terms of coverage area.
PNGRB said its focus is to increase the market share of natural gas in India’s energy basket, create infrastructure to support higher consumption, build a transparent and vibrant market and “balance the interests of consumers, transporters and producers of natural gas”.
India is looking to increase the share of natural gas in the energy mix to 15% by 2030 from 6% now. The government believes city gas sector will be a major driver of gas demand in the country. A city gas licence holder has the rights to develop infrastructure and market compressed natural gas (CNG) to vehicles and piped natural gas (PNG) to homes and industries.
City gas volumes set to soar
City gas sales volumes are set to soar 25-27% in the financial year ending March 31, 2022, driven by rebounding vehicular mobility and industrial activity, and a record price advantage versus competing fuels such as petrol, diesel and furnace oil, Crisil said in a note issued on September 14.
Such strong growth will help city gas distributors sustain robust operating margins of about 28%, even as higher prices of LNG get partly absorbed to cushion the impact on consumers, it added.
Last financial year saw city gas volume contract 13% as both demand for CNG and industrial PNG, which together contribute 90% of total city gas consumption, were hard hit by the pandemic, especially in the first quarter, before recovering.
“The first quarter of this fiscal, unlike last year, saw far less impact of lockdowns on vehicular mobility and industrial activities as volumes were up 130% on-year though down 18% sequentially,” said Manish Gupta, senior director, Crisil Ratings. “We expect sustained recovery for the rest of the year, as both CNG and industrial PNG demand improve on a combination of higher economic activity and record price advantage against alternate fuels. This will drive overall demand by 25-27% this fiscal, even 8% above fiscal 2020 levels.”
Sales volume of CNG, which accounts for about 40% of total consumption, will be driven by an expanding network of CNG stations (up from 2,500 in May 2020 to 3,180 in May 2021) and higher sales of factory-fitted CNG cars, Crisil said. Sales of CNG cars are expected to increase 50% to 260,000 units this fiscal year given their lower overall costs than competing petrol and diesel ones.
Demand for industrial PNG, which accounts for around 50% of total consumption, will benefit from improving competitiveness against crude-linked industrial fuels this fiscal year, a select ban on sale of polluting fuels such as furnace oil and petroleum coke, an expanding pipeline network, and hassle-free use.
Residential PNG, which accounts for the balance 10% of consumption, too, will continue to grow steadily with consumers shifting away from LPG to PNG due to its lower cost, increasing network and higher safety, Crisil said.
Importantly, the all-time-high price advantage of gas against alternative fuels will provide a fillip to volumes.
“Beginning this fiscal, successive price hike moves have increased petrol and diesel prices by 14-16%, with petrol prices over 100 rupees/litre mark across the country. Meanwhile, CNG price, driven by the domestic administered pricing mechanism formula, is at an all-time low and expected to be only 4-6% higher on-year,” said Naveen Vaidyanathan, associate director, Crisil Ratings. “LNG prices have spiked, but still trail the rise in crude oil linked industrial fuel prices. This has resulted in a record price advantage of 61-69% for CNG versus petrol and diesel, and a 14-21% for PNG versus industrial fuels.”
The increase in LNG means operators would absorb a part of the price increase. However, the higher volume will still support a stable operating margin of around 28% this fiscal, Crisil said. “Last fiscal, despite volume contraction, margin scaled to an all-time high of 28.5%, as companies benefited from multi-year low input gas prices, which were not fully passed on."