Sector Update: Natural Gas - Kotak

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India's gas consumption growth stayed strong supported by higher LNG demand. RLNG's gas consumption mix rose 206 bps yoy to 47% in August'18. Higher RLNG consumption is positive for PLNG. India's gas production increased 0.6% yoy due to increase in gas production by ONGC.

From 1st October 2018, domestic gas prices are expected to be revised upward which is positive for ONGC (biggest beneficiary), Oil India and RIL. On the flip side, higher gas price along with weak INR will negatively impact CGD companies and may impact margins.

CGD gas consumption rose by 6.6% yoy to 25 mmscmd. Higher CGD consumption is positive for IGL and MGL. RLNG prices increased which will negatively impact industrial and commercial gas consumption. Gujarat gas has the highest industrial gas exposure and might get impacted. Qatar Petroleum intends to raise production by a further 10% by 2024, to 110 mn tons per year. This will keep RLNG prices under control in the long term.

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

- India's total gas consumption: In August'18, India's gas consumption increased by 3.3% yoy to 166 mmscmd due to strong gas demand from all the sectors except petrochemical and power.

- RLNG consumption: Notable growth is witnessed in total RLNG consumption. In August'18, RLNG demand increased by 8% yoy to 78 mmscmd supported by double digit growth from both fertilizer (11% yoy) and refinery (18% yoy) sector growth. CGD sector imported gas demand decreased marginally by 1% yoy due to higher LNG prices and weaker rupee.

- The contribution of RLNG in India's total gas consumption mix rose to 47% in August'18 vs 45% in August'17, reflecting rising demand for imported gas. 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. However, short-term we are cautious because of rise in spot LNG prices.

- Domestic gas supply: India's gas production was marginally up by 0.6% yoy to 90 mmscmd in August'18 supported by higher gas production by ONGC. ONGC gas production rose by 5.6% yoy to 67 mmscmd. Oil India's production declined to 7.6 mmscmd (-9% yoy) and production from private players/JVs continued to decline and stands at 16 mmscmd (-12% yoy).

- India's total Gas consumption mix: Major consuming sectors are fertilizer (25%), power (18%), CGD (15%), refinery (12%), petrochemicals (6%) sector and balance by others.

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

Source : Equity Bulls

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