Crisil sees gas demand rising by 3.5 per cent annually till FY23

Mumbai: Gas demand is expected to post a 3.5 per cent CAGR between 2018 and 2023 fiscals to 191-193 MMSCMD mainly on the back of the incremental demand expected to come from the fertiliser and city gas distribution (CGD) sectors, says a survey.

According to Crisil, the conversion of naphtha-based urea plants, commissioning of new capacities under the new urea investment policy, and the revival of urea plants are likely to drive gas demand from the fertiliser sector.

Also, the regulatory push for CGDs, including priority allocation of domestic gas for compressed natural gas and domestic piped natural gas (PNG) segments, connecting more cities and districts to the gas pipeline infrastructure, along with a ban on polluting fuels such as fuel oil and petcoke in Haryana, Rajasthan and UP will push demand up.

"The industrial PNG segment is expected to see a shift from alternative fuels because of better competitiveness in comparison with LPG and the ban on fuel oil in the North. It is expected that the ban on polluting fuels would be extended to other states," the agency said.

Crisil, however, said demand from the power generation sector is expected to be subdued or only marginally improve, owing to accessibility and affordability challenges.

"Poor competitiveness of gas against coal and renewable sources, along with weak finances of power distribution companies, is expected to limit the usage of gas by power generators," it said.

The agency also expects that reintroduction of regulatory reforms, along with improved domestic gas supply, is necessary to revive gas demand from the power sector.

"It is noteworthy that although gas demand from the power sector rose 3.5 per cent to 32.9 MMSCMD in fiscal 2018, from 31.8 MMSCMD in fiscal 2017 (with no policy support), this was most likely because of lower spot prices of LNG," it said.

It can be noted that of late there has been a push to restart the LNG subsidy scheme to supply gas to stranded gas- based power plants.

"Along with the subsidy proposal, gas supply from newly commissioned fields of ONGC including the Vashistha+S1 and the Daman fields, among others, would positively impact the sector from fiscal 2020," it said.