*By Rutam Vora* The new area of energy sufficiency for India will be driven by growth in natural gas sector, which has remained fairly attractive for the investors over past few months. However factors like pace of exploration activity and availability of LNG capacities in the country joined with the pipeline infrastructure have posed a challenge for further growth in this next generation energy sector.
India’s natural gas production in March rose significantly at 155 Million Metric Standard Cubic Meter per Day (mmscmd) up by over 72% year-on-year. A recent research report by Anagram Research reported that gas production in India grew at a stable growth rate since 2002, at almost 2% CAGR, but the sector witnessed tremendous growth of 46% over last year, when the KG D6 gas production started. “KG D 6 gas production has started from April, 2009 so the production has increased sharply on YoY basis. Average production from FY09 to FY10E has increased from 87 mmscmd to 129 mmscmd,” report stated. Presently, KG D6 block is not producing natural gas at full capacity and spot LNG imports have nearly stopped. This has caused sluggishness in the growth of gas based industries in the country. In India, the share of gas in the energy basked remains high but is far below the global averages. Per capita consumption of gas in India is very low compared to global averages. Natural gas demand is spread across sectors but more importantly power sector and fertilizer companies seem to be seeking larger share of natural gas, as it is a cheaper source of energy than crude oil. Considering new power generation capacities being erected and increased demand for fertilizer in domestic as well as export markets joined with infrastructure like city gas distribution (CGD) sector becoming active, the demand for natural gas is estimated to grow at CAGR of 5.4% to increase to 177 mmscmd from 159.5 mmscmd by 2011-12. On the supply side, it is projected that supply will increase at a CAGR of 14.8% to 176 from 133.5 mmscmd by 2011-12. The deficit is likely to reduce to 1 mmscmd by 2011-12. The supply constraints are expected to be eased with commencement of peak production of 80 mmscmd at RIL’s KG D6 gas field from 2010-11 onwards. According to Anagram Research, demand for natural gas is divided among several sectors, of which power sector holds the largest share of 45%, followed by fertilizers with 28% share in total demand for natural gas. CGD, CNG, Steel and petrochemical sector holds 4% each in the total natural gas demand in the country. LPG production holds 6%, while other industries hold 9% of the total demand. The research report revealed that the total natural gas and RLNG gas availability in the country is around 163 mmscmd, of which APM Gas (Administered price mechanism) gas from Oil India Ltd and ONGC Ltd is totaled at 53 mmscmd, gas from NELP bidding equals at 60 mmscmd, private and JV gas exploration makes additional 25 mmscmd and RLNG makes 25 mmscmd of natural gas availability. But the main constrain which remained was gas pipeline network. Though there was demand for gas but due to the less development of gas pipeline network the gas producing fields did not produce at the full capacity. Pipeline infrastructure in India is crucial for gas based industrial development and growth in CGD sector. Presently, India has nearly 10,000 km of natural gas pipeline with current capacity of 300 mmscmd which includes 3000 kms of pipeline with a capacity of 119 mmsmcd. India has struggled to consume more than 155 mmscmd over recent quarters but there was some lack of investment in consuming industries as well as delay in the new pipeline capacity. In order to address the rising need of pipeline infrastructure for gas transport, the petroleum ministry has come up with an idea of developing a long distance gas highway leading to a National gas grid. This will facilitate the transportation of gas across the country. The proposal is not finalised yet. However, experts believe that the work on the pipeline infrastructure should have been fasten in order to remove regional imbalances in the county by taking the gas to distant and deficient regions of the nation. Companies operational in natural gas transportation and distribution include, Gujarat State Petronet Ltd (GSPL) (BOM:532702), Gujarat Gas Company Ltd (BOM:523477), Indraprastha Gas Ltd (BOM:532514) and GAIL (India) Ltd (BOM:532155). The company performance over past one quarter showed that the stock prices have appreciated with significant gains. Gujarat Gas, IGL and GSPL posted gains over 10% in past three months on the Bombay Stock Exchange (BSE), while GAIL rose by over 16% during the given period. According to estimations given by the Anagram Research, GSPL’s volume growth which is estimated to grow from 15 mmscmd in FY09 to 45 mmscmd in FY11E is already factored in the price. The analyst firm is of the opinion for the upbeat mood in the stock in coming days with tariffs are likely to be in the range of 750-800/tcm from the current level as the company has submitted tariff revision to PNGRB for FY10E-11E. GSPL has a total market capitalization of Rs.55.08 billion as on 24 June, 2010. IGL is a joint venture, promoted by GAIL, BPCL, and the Delhi government and has a market capitalization of Rs.35.14 billion as on Thursday, June 24, 2010. The research analyst firm is optimistic about future growth in the stock price. As 30 CNG stations are likely to get operational in this month volume growth is expected to increase. Moreover considering more CNG vehicle conversion will also be the leading contributor for volume growth. Gujarat Gas, an independent energy distribution company is believed to tread upward. “Considering the overall volume growth to 3.2 mmscmd (25% YoY) for Q1CY10 and allocation of KG D6 gas, we are confident that the volume growth will drive the earnings for CY10E and EPS will improve going forward,” said the analyst firm. As the availability of gas in the country seen improving, CGD comprising of CNG and PNG is found to be an area of growth potential. The growth potential in gas distribution is equally huge as exploration. Hence, analysts believe higher growth prospects for gas distribution companies, provided the government goes ahead with its pipeline expansion plans. -- Regards Hardik Shah -- You received this message because you are subscribed to the Google Groups ""GLOBAL SPECULATORS"" group. To post to this group, send email to [email protected]. To unsubscribe from this group, send email to [email protected]. For more options, visit this group at http://groups.google.com/group/globalspeculators?hl=en.
