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High petrol, diesel rates to drive city gas volumes up 27 per cent
Sales volume of city gas is set to soar in a range between 25 per cent and 27 per cent this fiscal, driven by rebounding vehicular mobility and industrial activity, and a record price advantage versus competing fuels such as petrol, diesel and furnace oil.
City gas comprises Compressed Natural Gas (CNG) used by vehicles, and Piped Natural Gas (PNG) used by homes and industries.
“The strong growth will help city gas distributors sustain robust operating margins of 28 per cent even as higher prices of liquefied natural gas (LNG) get partly absorbed to cushion the impact on consumers. That, and strong balance sheets, will support stable credit profiles of distributors,” rating agency CRISIL said in a report.
Last fiscal saw city gas volume contract 13 per cent as both demand for CNG and industrial PNG, which together contribute 90 per cent of total city gas consumption, were hard hit by the pandemic, especially in the first quarter, before recovering.
The first quarter of the current fiscal, unlike last year, saw far less impact of lockdowns on vehicular mobility and industrial activities as volumes were up 130 per cent on-year though down 18 per cent sequentially.
“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 per cent this fiscal, even 8 per cent above fiscal 2020 levels,” said Manish Gupta, Senior Director, CRISIL Ratings.
Sales volume of CNG, which accounts for 40 per cent 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 sale of factory-fitted CNG cars.
Sales of CNG cars are expected to increase 50 per cent to 2.6 lakh units this fiscal given their lower total cost of ownership than competing petrol and diesel ones.
Demand for industrial PNG, which accounts for around 50 per cent of total consumption, will benefit from improving competitiveness against crude-linked industrial fuels this fiscal, a select ban on sale of polluting fuels such as furnace oil and pet coke, an expanding pipeline network, and hassle-free use.
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