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India’s Natural Gas Demand Rises in November (Explained for Investors)

India’s natural gas consumption jumps 6% year-on-year in November aided by higher domestic output and rising LNG imports.

Analysis for Layman

A recent report discusses the increased demand for natural gas in India, based on data from the Petroleum Ministry. Here’s what this news means in simpler terms:

  1. Higher Gas Demand: In November 2023, India saw a 6% increase in the consumption of natural gas compared to the same period the previous year. This indicates that more natural gas was used in various industries and sectors during that time.
  2. Domestic Production: India produced more natural gas domestically, contributing to the increased supply. Domestic production went up by 7.6% year-on-year. However, one of the major state-owned gas producers, ONGC, saw a 3.6% decline in production in November.
  3. Private Sector Contribution: To make up for the production decline by ONGC, private sector companies like Reliance-BP increased their natural gas output by 26%. This shows that private companies are playing a significant role in meeting the demand for natural gas.
  4. LNG Imports: India also imported more Liquefied Natural Gas (LNG), with a 5% annual increase. Qatar was the leading source of LNG imports. LNG is natural gas that has been cooled to a liquid state for ease of transport.
  5. Cumulative Growth: Looking at the period from April to November, natural gas usage increased by 8.5% compared to the previous year. LNG imports also grew by 12% during this time.
  6. Top Gas Consumers: The sectors that consume the most natural gas in India are fertilizer units, followed by city gas utilities (which provide compressed natural gas or CNG for vehicles), and power plants.

India's Natural Gas Demand Rises in November (Explained for Investors)

Impact on Retail Investors

For retail investors, the rising demand for natural gas indicates economic growth and increased consumption across various industries, including fertilizers, automobiles, power generation, and city gas distribution. This trend can provide stable volume visibility for gas utilities like IGL, MGL, and Gujarat Gas. Investors can also explore opportunities in companies like Petronet LNG, which deal with liquefied natural gas. However, it’s essential to be aware of the risks associated with global gas price volatility and currency fluctuations, which can impact earnings, especially for companies dependent on LNG imports. Additionally, ONGC’s production issues need to be carefully assessed, taking into consideration management’s production guidance. Overall, the growth in demand supports the long-term prospects of the natural gas sector.

Impact on Industries

The oil and gas production and distribution industry benefits from the resilient demand for natural gas, despite global uncertainties affecting the broader economy. Increased domestic production is beneficial for companies like ONGC, Oil India, and private producers like Reliance-BP. Gas transmission operators such as GAIL and GSPL also witness growth in volumes. The rise in LNG imports positively impacts shipping, regasification, and logistics providers like Petronet LNG, GSPL, and Adani Ports. Various industries, including fertilizer, automotive (CNG usage), and industrial users, benefit from the increased gas supply. However, city gas companies may need to consider gradual gas price increases to protect their margins if global prices continue to rise after the Russia-Ukraine conflict.

Long Term Benefits & Negatives

In the long term, the strong demand for natural gas encourages upstream producers to invest in exploring new sources and increasing domestic production. This includes both government-owned companies like ONGC and private players like Reliance-BP. The growth in the gas sector also leads to investments in pipeline infrastructure and distribution. However, there is a risk associated with overreliance on imported LNG, as nearly half of the demand is currently met by overseas shipments. Geopolitical conflicts can disrupt these supplies. Therefore, it’s crucial for India to boost local production through investor-friendly policies to achieve self-sufficiency. Maintaining a stable regulatory environment is also essential to attract investments in various user industries.

Short Term Benefits & Negatives

In the short term, the robust gas demand seen in November suggests a post-COVID industrial recovery in India. The increase in domestic production and LNG imports temporarily eases the availability of natural gas. This allows city gas companies to gradually raise CNG and PNG (piped natural gas) prices and enables fertilizer units to secure affordable shipments from international spot markets. However, concerns about a global economic recession may pose risks to future demand. Additionally, if high gas prices persist, they could contribute to inflation, potentially requiring demand management or subsidy support. For now, steady volumes indicate favorable operating conditions for companies in the oil and gas sector.

Impact of Increased Domestic Natural Gas Usage:

Indian Companies Gaining:

  • City Gas Distributors (Mahanagar Gas Ltd., Indraprastha Gas Ltd.): Increased domestic gas utilization benefits city gas distributors as they primarily consume this cheaper, government-regulated gas. Higher demand could lead to increased volumes, improved margins, and potentially higher stock prices.
  • Private Gas Producers (Gail India Ltd., Reliance Industries Ltd.): Rising domestic gas output, particularly from private players, strengthens their market share and reduces dependence on expensive LNG imports. This could improve their financial performance and potentially lead to positive market sentiment.
  • Gas Pipeline Operators (Gujarat Gas Ltd., Petronet LNG Ltd.): Increased gas consumption translates to higher volumes traversing pipelines, boosting revenue and profitability for these companies. The news could positively impact their stock prices.
  • Fertilizer Companies (National Fertilizers Ltd., Chambal Fertilizers & Chemicals Ltd.): While LNG remains their primary fuel, increased domestic gas availability offers fertilizer companies a diversified and potentially cheaper fuel source. This could improve their cost structure and margins, although the impact will depend on the extent of substitution.
  • Renewable Energy Companies (Tata Power, Adani Green Energy Ltd.): Increased reliance on domestic gas may temporarily slow the adoption of renewable energy. However, this could be a temporary phenomenon and long-term demand for renewables remains strong.

Indian Companies Losing:

  • LNG Importers (Petronet LNG Ltd., GAIL India Ltd.): Lower dependence on LNG imports could negatively impact companies involved in LNG sourcing and transportation. Lower demand may lead to reduced capacity utilization and potentially affect their stock prices.
  • Coal Companies (Coal India Ltd., Singareni Collieries Co. Ltd.): Natural gas competes with coal in power generation. Increased gas utilization may lead to lower coal demand, impacting mining companies’ volumes and potentially putting downward pressure on their stock prices.

Global Companies Gaining:

  • Major Gas Exporters (Qatar Petroleum, Gazprom): While India’s focus on domestic gas may reduce short-term LNG demand, its long-term gas needs are expected to rise. This offers continued market opportunities for major gas exporters.
  • Gas Pipeline Technology Providers (Baker Hughes, Schlumberger): Increased focus on domestic gas production could lead to investments in exploration, drilling, and production infrastructure, benefiting companies providing related technologies and services.

Global Companies Losing:

  • Global Coal Companies (Glencore, BHP): Similar to Indian coal companies, global coal giants could face reduced demand if gas displaces coal in power generation across the globe. This could potentially impact their stock prices and overall profitability.

Market Sentiment:

The news is likely to be viewed positively by companies and sectors benefiting from increased domestic gas utilization, potentially leading to higher stock prices. Conversely, companies exposed to reduced LNG imports, coal demand, or renewable energy growth might face negative market sentiment. However, the long-term impact will depend on the evolving energy mix and India’s future reliance on various fuel sources.

Remember: This is a general analysis based on the provided information. It’s crucial to conduct further research and consider individual company specifics before making investment decisions.

Citation: “Domestic Natural Gas Usage Up 6% in Nov.” The Economic Times, 19 Dec. 2023.

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