CNG-PNG use could soar on all-time high price edge over other fuels: Crisil

Rating agency sees 25-27% surge in sales, driven in part by rebounding vehicular mobility and industrial activity as well

The sale of natural gas for domestic and commercial uses through compressed natural gas (CNG) and piped natural gas (PNG) is expected to grow by at least a quarter, according to Crisil Ratings.

“Gas consumption is set to soar 25-27 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,” Crisil Ratings said in a statement.

“Such strong growth will help city gas distributors sustain robust operating margins of around 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,” the statement added.

City gas volume had contracted by 13 per cent during financial year 2020-21. This was because both demand for CNG and industrial PNG, which together contribute 90 per cent of total city gas consumption, were hard hit by the pandemic. The decline was sharper in the first quarter, before recovering.

“The first quarter of this 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.

The sales of CNG, which accounts for about 40 per cent of total consumption and is used in vehicles, 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,” CRISIL said.

“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,” Crisil added.

It is also expected that residential PNG, which accounts for the balance 10 per cent of consumption, will continue to grow steadily this fiscal with consumers shifting away from LPG to PNG due to its lower cost, increasing network and higher safety.

According to CRISIL, there is currently an all-time-high price advantage of natural gas against alternative fuels that will provide a fillip to volumes.

“Beginning this fiscal, successive price hike moves have increased petrol and diesel prices by 14-16 per cent, with petrol prices over Rs 100 per litre mark across the country. Meanwhile, CNG price, driven by the domestic administered pricing mechanism formula, is at an all-time low and expected to be only 4-6 per cent higher on-year. LNG prices have spiked, but still trail the rise in crude oil linked industrial fuel prices. This has resulted in a record price advantage of 61-69 per cent for CNG versus petrol and diesel, and a 14-21 per cent for PNG versus industrial fuels,” said Naveen Vaidyanathan, Associate Director, Crisil Ratings.