Post the correction, analysts feel the stocks are factoring in concerns despite the companies
expected to continue benefitting from strong fundamentals. While spot prices of LNG having more than halved to a decadal low of less than $3 per million metric British Thermal unit (mmBtu) in February 2020, there is an oversupply of gas. The coronavirus outbreak has only aggravated the situation. However, it bodes well for all CGD players, at it spurs demand for the cheaper fuel besides improving their profitability.
Says Manish Gupta, Senior Director, CRISIL Ratings, “At a Brent crude price of $55 per barrel, the landed cost of furnace oil would be about $12 per mmBtu (million British Thermal Units), while industrial LPG will be about $16 per mmBtu. On the other hand, industrial piped natural gas, apart from being cleaner, is significantly cheaper at $10.5 per mmBtu.”
Clearly the competitiveness of gas is to continue driving demand as also pollution control measures. The benefits are also likely to sustain as gas prices are to remain subdued for longer, as liquefication capacity of about 180 million tonne (equal to 40 per cent of current world capacity) is set to be commissioned over the next 4-5 years and domestically, regasification capacity, too, is expected to witness robust growth, outpacing LNG demand.
Even compressed natural Gas (CNG) demand is expected to continue growing led by rising demand for cleaner fuels on the back of pollution control measures and BS VI implementation.
As established city gas distributors such as IGL, Gujarat Gas
and MGL benefit, the news
is also good for new players like Adani Gas, Torrent Gas and others who have bid for newer geographies. However new incumbents will have to first set up basic infrastructure and hence, benefits will accrue overtime.
Overall, it will be benefit GAIL too, as higher gas demand from city gas distributors and increased geographical presence will boost volumes from India's largest pipeline network company, driving its revenues and profits.
In addition to gas players, the benefits will be seen by user industries. As lower gas costs may benefit power producers, the fertiliser plants using gas as feedstock will also benefit. Likewise, the tile producers also stand to gain. While the coronavirus is hurting exports to China, in the long-run the consolidation and shift of market share to organised players also bodes well for the domestic tile industry.