Sector Update: Natural Gas Sector - Kotak

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- India's gas consumption growth stayed strong supported by higher LNG demand. RLNG's gas consumption mix rose 690 bps yoy to 48% in June'18. On the flip side, India's gas production declined 3% yoy due to decline in gas production by both public and Private/Joint Ventures (JVs) gas producers.

- Higher RLNG consumption is positive for PLNG. CGD gas consumption growth is positive for IGL and MGL. Falling gas supply from Oil India/private players is negative for domestic upstream companies.

- Monthly readings on natural gas production, availability and consumption in India

- India's total gas consumption: In June'18, India's gas consumption increased by 9.6% yoy to 170 mmscmd due to strong gas demand from all the sectors except petrochemical.

- RLNG consumption: Notable growth is witnessed in total RLNG consumption. In June'18, RLNG demand increased by 28% yoy to 82 mmscmd supported by double digit growth from both fertilizer (29% yoy) and power (74% yoy) sector growth. CGD sector imported gas demand also increased by 9% yoy.

- The contribution of RLNG in India's total gas consumption mix rose to 48% in June'18 vs 41.4% in June'17, reflecting rising gas demand. We expect this rising trend to continue in the medium to long term due to better cost economics relative to liquid fuel, continuously rising RLNG supply, and rising demand from industrial and commercial segment.

- RLNG import: India's LNG import jumped by 34% yoy in June'18 with the fall in international RLNG and lower domestic gas supply

- Domestic gas supply: India's gas production was marginally down by 3% yoy to 89 mmscmd in June'18 impacted by a decline in Oil India's production to 7.3 mmscmd (-7.2% yoy), ONGC's output declined marginally to 65 mmscmd (-1% yoy) and production from private players/JVs continued to decline and stands at 16.8 mmscmd (-7.2% yoy).

- India's total Gas consumption mix: Major consuming sectors are fertilizer (25%), power (20%), CGD (14%), refinery (12%), petrochemicals (5%) sector and balance by others.

- India's natural-gas demand currently stands at 8% of the global per-capita average which is expected to get a boost from the government's plan to revitalize more than 10,000 kilometers of gas-pipeline projects by offering viability-gap funding" to stalled projects. This should help more than double gas transmission capacity to 962 mmscmd.

- Top Picks: MGL (TP Rs.1030) & Petronet LNG (TP Rs.267)

Source : Equity Bulls

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