India’s city gas distribution (CGD) sector might see daily sales volumes decline by 8-10 per cent in the near term due to reduced natural gas availability following disruptions linked to the ongoing conflict in West Asia, according to Crisil Ratings.
Supply constraints have emerged after Qatar, which accounts for about 45 per cent of India’s LNG imports, declared force majeure on deliveries, triggering shortages across the gas value chain.
The impact is expected to be uneven across segments, with industrial and commercial piped natural gas (PNG) likely to be hit the most because of its heavy reliance on imported LNG, while compressed natural gas (CNG) and domestic PNG supplies are expected to remain largely unaffected due to priority allocation of domestically produced gas.
The CGD industry depends on domestic production for about 60 per cent of its gas requirement, while the remaining 40 per cent comes from imports.
Supply constraints have emerged after Qatar, which accounts for about 45 per cent of India’s LNG imports, declared force majeure on deliveries, triggering shortages across the gas value chain.
“The industry’s daily sales volume is expected to decline by 8–10 per cent primarily due to curtailment of natural gas supply to I&C customers. This is despite likely government support to CGD companies to reduce curtailment to I&C customers from the current level of 40–50 per cent. Meanwhile, Indian gas traders are seeking alternative sources to offset reduced LNG supply,” said Ankit Hakhu, Director, Crisil Ratings.
Haku, however, added that limited excess supply in the export market and elevated spot prices pose a challenge. LNG facilities of key exporters are operating at 90–95 per cent capacity, leaving limited room for additional global supply to offset the absence of Qatar’s 77–80 MTPA export volumes, if the situation prolongs.
CNG and PNG-Domestic together account for around 70 per cent of CGD volumes and are expected to remain stable, as these segments are supplied largely from domestic gas and have been designated priority sectors for allocation under government rules.
“While the impact on operating margins is expected to be limited, the operating cash accruals of CGD players may moderate due to impact on volumes. However, credit profiles will be cushioned by healthy balance sheets of the players,” said Gauri Gupta, Team Leader, Crisil Ratings
She added that liquidity greater than nine months of debt servicing and support from sponsors with strong credit profiles will provide resilience against near-term shocks.
Crisil said CNG, which accounts for about 60–65 per cent of CGD volumes, and domestic PNG, which contributes 5–10 per cent, are not expected to see any supply cuts.
However, the industrial and commercial PNG segment, which makes up roughly 30 per cent of total volumes, could see curtailment of about 30–40 per cent, leading to the overall industry volume decline of around 8–10 per cent.
