As India is battling some of the worst air pollution in the world, the government is keen to boost the use of natural gas to promote gas based economy.

The government has set a target to increase the share of natural gas in India’s primary energy mix to 15 percent in 2022 from around 6.5 percent in 2015 as the energy mix has gone up considerably in 2018.

For the month of October, the gas production numbers were stable. While gas production for October stood at 90 mmscmd (million standard cubic feet per day), implying 0.4 percent decline year over year (YoY), it increased by 0.8 percent month-over-month implying a multi-month high.

State-run ONGC's production was at a record level of 68.1 mmscmd that implied a growth of 4.6 percent YoY, Oil India Limited produced 8 mmscmd and other private players produced 15 mmscmd.

The total gas consumption for October, 2018 stood at 170.4 mmscmd that implied a 2.3 mmscmd increase from Q2FY19 levels. On an average, power sector is the biggest consumer of natural gas in India, followed by fertilisers, city gas, refinery and other industrials. The share of liquefied natural gas (LNG) in total gas consumption mix has been around 47-48 percent on an average.

This year has seen a notable push on city gas distribution (CGD), with 86 areas being offered for bids in the 9th round. The 10th CGD round is offering 50 geographical areas (GAs), where the technical bids will open from February 7 to 9, 2019 and letter of intent is expected to be issued by end of February, 2019. This compares with a total of 101 GAs being offered in total so far.

The government is betting big on the natural gas sector and has announced investments to the tune of Rs 800 billion in the city gas space, which is aimed at achieving Prime Minister Narendra Modi's target of achieving piped cooking gas connection in 10 million houses by 2020.

There has been a gradual change in the consumption pattern in last few months. City gas consumption saw a sharp increase in October that went up by 10.9 percent YoY and 2 percent QoQ.

Further, if natural gas is brought under Goods and Services Tax (GST), this would make the sector more attractive as companies will be able to get input tax credit and will gain with regard to pricing and margins.

This move could increase the competitiveness of natural gas against competitive fuels (LPF, fuel oils etc). CGD companies are currently subject to excise duty and VAT on natural gas, which is above 70 percent of their sales volume.

Excise duty, as well as VAT, will get subsumed under GST. This move could possibly increase CGD's pricing power from 2-14 percent. While there has been a big push, infrastructure bottleneck is the key factor constraining natural gas volume growth in the sector.

Global brokerage house Jefferies said even if there is underlying demand for CNG, volume growth for natural gas segment could be capped by constraints on the infrastructure side. This needs to be addressed in order to make the sector more attractive for investment.

First Published:Dec 7, 2018 7:45 PM IST