The government’s push to increase the consumption of clean fuels and improving the share of natural gas in the primary energy mix is boosting gas consumption by the City Gas Distribution (CGD) sector with volumes likely to appreciate at an annual rate of around 10 per cent in the next five years.
According to a report by CareEdge Ratings, natural gas volumes are expected to expand at a sustainable compound annual growth rate (CAGR) of around 10 per cent over FY25-30, supported by capital expenditure (capex) of ₹30,000 crore during FY25-FY27.
Tej Kiran Ghattamaneni, Assistant Director at CareEdge Ratings said “The industry is poised for strong growth with CGD consumption share of natural gas set to rise to 25 per cent by 2030. In the CGD consumption mix, CNG is expected to continue dominating volumes, supported by growth in CNG-powered vehicles and complemented by an increase in refuelling stations.”
The piped natural gas – domestic (PNG-D) penetration has enormous potential, with its share compared to LPG at only 1.5-2 per cent in the South, East, and North-East parts of the country. While the targets set for PNG-D connections appear optimistic, even partial delivery would drive rapid growth in gas demand, he added.
Addressing challenges related to timely approvals, trunk pipeline expansion, and connection to the national grid, as well as last-mile connectivity, shall be a prerequisite for the successful augmentation of the planned infrastructure in the sector, he emphasised.
Puja Jalan, Director at CareEdge Ratings projected that overall industry revenue is expected to grow at a CAGR of around 18 per cent during FY25-FY27 with profitability likely to improve in the medium term with growing volumes resulting in operating leverage efficiency.
“In the long run, profitability will be largely determined by the gas sourcing strategy adopted by CDG players in terms of APM usage and the proportion of spot and contracted R-LNG,” she added.
For the CGD sector, Jalan said adding, dependence on costlier LNG import is expected to increase to around 55 per cent by FY30 from about 26 per cent level in FY24, thereby reinforcing the need to secure long-term contracts to manage price volatility.
India has historically relied heavily on imports for natural gas due to stagnant domestic gas production. However, the share of imported LNG declined post-FY22, primarily due to an increase in domestic gas production from newly developed wells.
The CGD sector also mirrored the same. Domestic gas production met around 55 per cent of the CGD sector’s requirement, with this proportion increasing to 74 per cent in FY23-FY24.
The increasing import dependence of the sector since FY25 is led by increasing demand with CGD growth and a limited increase in domestic production.
As of December 2024, India has 22 million tonnes per annum (MTPA) of long-term R-LNG contracts, and considering the new agreements that have been signed, it is expected to increase to 27 MTPA, which is likely to meet approximately 50 per cent of India’s import needs.
To mitigate risks associated with fluctuating spot LNG prices, maintaining an optimum percentage of long-term sourcing contracts will remain critical for the CGD players, CareEdge explained.
