Consumption blip, outlook robust
* Consumption declines on surge in spot LNG prices: India’s gas consumption declined to 134mmscmd in Jan’17 (-1.5% YoY, -4.6% MoM), led by lower offtake from the power generation, fertiliser and city gas distribution (CGD) segments. LNG consumption was hit the hardest (-4% YoY, -4% MoM) due to a surge in spot LNG prices to a high of US$ 9.3/mmbtu (US$ 8.3 on average for Jan’17). Spot prices have since declined to US$ 6.7/mmbtu in Feb’17, implying consumption should revive across sectors from Feb/Mar’17. Refer to Fig 1 on page 2 for more details.
* Power, fertiliser and industrial consumption the hardest hit: Power consumption declined to 29mmscmd (-5% MoM, +1.3% YoY), with a sharp 15% MoM drop in LNG offtake. Industrial demand for gas dipped to 45mmscmd (-4% MoM, +6% YoY), again consuming less LNG (-8% MoM). Fertiliser sector consumption declined to 40mmscmd (-5% MoM, -13% YoY) on account of maintenance shutdowns at some plants, with the sector’s LNG consumption slipping 4.8% MoM. CGD offtake of gas remained robust at 20mmscmd (-4% MoM, +16% YoY), mostly driven by an increase in CNG. Steel sector consumption of LNG continued to surge (+31% MoM, 1.8x YoY).
* Domestic gas production remains under pressure: Gross domestic gas production improved 12% YoY to 88mmscmd in Jan’17 (69mmscmd net) from 79mmscmd (61mmscmd net) in Jan’16. Production from PSUs increased, led by ONGC (+25% YoY, base effect of field maintenance disruption in Jan’16), while that of private players/JVs (KG-D6, PMT) declined 15% YoY to 18mmscmd.
* LNG consumption could revive from Mar’17: Increased availability from PLNG’s recently commissioned 5mmtpa (~18mmscmd) Dahej regasification terminal expansion could be a primary driver for higher LNG consumption. Additionally, the recent decline in LNG prices should support a demand revival from price-sensitive sectors such as power. The recent spike in oil prices to US$ 56/bbl should also make LNG more attractive. Focus on pollution control to bolster LNG offtake: Recent media reports point to a possible ban on petcoke/fuel oil use in industrial units across the country, as the Supreme Court is compelling the government to frame a policy to keep pollution in check. Natural gas offers a readily available alternative for industrial units, particularly in areas that have established gas infrastructure (such as Delhi/NCR, Gujarat, Uttar Pradesh and Maharashtra). GAIL, PLNG, IGL and GUJGA would be the biggest gainers should this ban materialise. The above development is in line with our analysis as mentioned in our recent sector note Fundamentals sound – re-rating to continue.
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