LNG pipelines and city gas supply to see capex of up to 15k crore for 3 years

Chennai: The pipeline transmission of liquified natural gas and the City Gas Distribution segment is expected to pump in Rs 10-15,000 crore per annum over the next three years.

Natural gas demand grew 14 per cent YoY in the seven months of FY2024 supported by softening liquefied natural gas (LNG) prices and the uptick in domestic gas production.

LNG prices have remained soft since the beginning of FY2024 supported by faster-than-anticipated filling of natural gas inventories in the US, the EU, and Japan. China’s shift towards coal and increased pipe flows from Russia have kept the LNG demand in check, thereby supporting the price levels, said ICRA.

To reduce reliance on LNG imports, the government has announced mandatory blending of compressed biogas (CBG) in natural gas. While CBG production has lagged owing to various issues so far. The government expects mandatory blending to support investments in the sector, going forward.

Gas demand in India is expected to increase by about 8-10 per cent in FY2024 and about 6-8 per cent in FY2025 driven by increasing offtake by the City Gas Distribution (CGD) sector amid an expanding network. Strong off-take by the industrial segment, which includes refineries and petrochemical plants, and a surge in off-take by the power sector amid rising power demand will also support natural gas demand.

Going forward, capex in the sector is expected to increase, especially for CGD entities. The city gas distribution entities and pipeline gas transmission are expected to see capital expenditure of Rs 10,000 -15,000 crore per annum in the next three years. Due to the capex underway in the CGD and pipeline segment, the debt levels of the industry are expected to increase to Rs 19,500-20,000 crore by March 31, 2024, and to Rs 22,000-23,000 crore by March 31, 2025.