Rising fuel prices accelerate demand for CNG vehicles in India
Rising fuel prices have accelerated demand for CNG vehicles in the country. Accordingly, the availability of CNG in more cities has supported this trend. “Demand for CNG vehicles remains strong, benefiting from surging fuel prices and increased CNG penetration in newer cities,” said Motilal Oswal Financial Services (MOFSL). “Inventory in the system is 10-20 days.” According to MOFSL, the retail demand evolution has been a mixed bag since the lifting of the second lockdown from mid-June 2021. It pointed out that demand has bounced back quicker for ‘PVs, but 2Ws’ have seen slower recovery. Besides, ‘CVs’ are expected to see healthy recovery from October 2021, the outlook for tractors is cautious due to the very high base of last year. “Demand for ‘2Ws’ is recovering very slowly, primarily due to the higher impact of the second wave in the rural market as well as higher fuel prices.” “Moreover, with increasing noise around EVs, customers are holding back on their purchases. Inventory in the system stands at 45-50 days as OEMs hope for good recovery during the upcoming festive season.” Furthermore, the report cited that demand for PVs remains strong, but sales are hampered by supply chain constraints, leading to high waiting periods for some of the high-selling models. “Inquiry levels are healthy and OEMs have a strong order book.”
Torrent Gas begins gas supply for households and industries in Gorakhpur
Torrent Gas Ltd on Sunday said it has commenced supply of natural gas to domestic households and industries in Uttar Pradesh’s Gorakhpur town. The state’s Chief Minister Yogi Adityanath on Sunday inaugurated Phase 1 of the city gas distribution (CGD) network in Gorakhpur, the firm said in a statement. “As part of the event, the CM inaugurated the supply of piped natural gas (PNG) to the first set of 100 domestic connections and one industrial connection. “He also dedicated the city gate station (CGS) and eight CNG stations of Torrent Gas, taking the total number of Torrent’s operational CNG stations in Gorakhpur GA (geographical area) to 18,” it said. Torrent Gas, the CGD utility of the diversified Torrent Group with group revenues of Rs 21,000 crore, has been authorised by the Petroleum and Natural Gas Regulatory Board (PNGRB) to establish and operate the CGD network and provide compressed natural gas (CNG) and PNG in 15 districts across Uttar Pradesh, including Gorakhpur. Domestic PNG is reasonably priced and brings savings of up to 43 per cent as compared to LPG. It is a paradigm of convenience for households due to multiple advantages such as reliability of supply, no requirement of storage space, no need for advance bookings or fear of dry-outs. For industries, it is not only convenient and economical but also has a lower carbon footprint as compared to other fossil fuels, and is eco-friendly. Speaking on the occasion, Adityanath said, “Availability of PNG will bring great relief to the people of Gorakhpur in general and housewives in particular due to the convenience and significant savings it offers. Availability of natural gas is likely to attract more industries in Gorakhpur bringing in new opportunities and development in the region.” Jinal Mehta, director of Torrent Gas, said, “Torrent Gas with presence in 15 districts across Uttar Pradesh is committed to the overall development of the state and has planned an investment of Rs 3,300 crore by FY26. Out of this, almost Rs 1,800 crore will be spent in eastern Uttar Pradesh, including Gorakhpur.” Through this investment, Torrent intends to connect over 8.25 lakh residences in UP with PNG supply and set up over 225 CNG stations in UP over the coming years.
After oil, gas price may see surge upsetting CNG, PNG rates
After the crude oil surge, global gas prices are expected to soar this year, putting consumers in India at the risk of inflated CNG and PNG rates. As per an assessment of the gas market done by Kotak Institutional Equities (KIE), domestic gas price are expected to more than double to $6.6-7.6/million BTU in 1HFY23E from the current level of $3.2/million BTU available during 2HFY22. “We compute a steep increase in domestic gas price to US$6.6-7.6/mn BTU for 1HFY23E, driven by the recent steep increase in global gas prices and anticipated higher futures curve in the coming months,” KIE said in its report. Benchmark gas prices have increased further in September 2021- with Henry Hub gas price increasing to $5.1/mn BTU from $4.1/mn BTU in August ($2.6/mn BTU used in the calculation for 2HFY22 prices), and UK NBP jumping to 15.4 pounds/mn BTU from 10.9 pounds/mn BTU in August (5.9 pounds/mn BTU used in the calculation for 2HFY22 prices). Moreover, Alberta hub gas price also increased to $3.1/mn BTU from $2.8/mn BTU in August ($2/mn BTU used in the calculation for 2HFY22 prices). Asian spot LNG prices increased further to $22.8/mn BTU from $16.7/mn BTU in the previous month. Higher gas prices means higher cost of transportation and cooking fuel for consumers. While the CNG margins are steady in September, a price hike of Rs 5-7/kg is required to pass on gas cost. IGL had undertaken a price hike on August 30 to mitigate higher cost of incremental LNG that it had to use for its CNG segment given capping of domestic gas allocation at 110 per cent of CNG consumption in 2HFY21. “We note that IGL and MGL will be required to take price hikes of around Rs 5-7/kg to pass on the impact of higher domestic gas price in 2HFY22,” KIE said.
What’s behind the wild surges in global LNG prices and the risks ahead
In less than a year and a half, liquefied natural gas (LNG) prices have lurched from record lows to record highs, with the market first reeling from the impact of the pandemic and now unable to keep up with a global recovery in demand. Demand jumped on economic growth plus a cold northern hemisphere winter followed by a hot summer, while supplies have been stymied by production problems. Recent power curbs and outages across China due to coal shortages have only exacerbated competition between Asia and Europe in securing sources of energy. That’s led to LNG prices hitting $34 per million British thermal units this week compared with just under $2 mmBtu in May 2020, while European gas prices have catapulted 300% higher this year. HOW BAD IS THE SUPPLY-DEMAND MISMATCH? Gas inventories remain critically tight in Europe and Asia which together account for 94% of global LNG imports and over a third of global gas consumption. Most major LNG producers are operating at or close to full capacity and have allocated the vast majority of their shipments to specific customers, leaving little prospect of a short-term fix. According to the International Gas Union, only 8.9 million tonnes per annum (mtpa) of a total 139.1 mtpa of planned new liquefaction capacity is expected to come online in 2021. Some of that additional capacity has been delayed by COVID-19 movement restrictions that have stopped or dragged out construction and maintenance work at several key sites including in Indonesia and Russia over the past year. So far this year, 288.1 million tonnes of LNG has loaded for exports globally, just 7% growth over the same period last year, Refinitiv data shows. WHAT ARE THE RISKS AHEAD? Buyers may struggle to buy enough gas for restocking and use. Less wind in Europe lately has boosted gas usage by power stations there, while in China power is being rationed to industry and some residential users, triggering a jump in LNG imports. Current long-range forecasts call for a mild winter in much of Asia this year, but the market fears a repeat of the 2020/21 cold snap could lead to a buying binge similar to the one in January that fired up prices. “At the extreme, it would not be a surprise if some gas or LNG cargoes could even change hands in the $100/MMBtu range, or ~$580/bbl in oil-equivalent terms, based on observing how prices have spiked in the U.S. gas market, for example, over the past ten years,” Citi said in a note to clients last week. HOW DID WE GET HERE? Spot LNG fell to a record low of $1.85/mmBtu in May 2020, when coronavirus containment measures snuffed out power demand just as new supplies from major producers including Qatar, Australia and the United States flowed onto the market. LNG producers slashed production, reducing shipments through the 2020 summer which have had a lasting impact on global gas inventories. The 2020/21 winter freeze then caught many power providers short, sparking a surge in spot demand and tightening gas stockpiles further just as logistics constraints slowed delivery times. Those factors and high shipping rates sent LNG spot prices rocketing to a record $32.50 per mmBtu in mid-January, though prices returned below $10 by the end of the month. Prices have since bounced back. European buyers struggled to rebuild stocks, with a hot summer boosting air conditioner use just as high carbon prices forced power generators to cut coal use and burn more gas. Gas field maintenance in Norway and lower volumes from Russia also cut supplies. Higher purchases by Asia on growth in Chinese demand and stock rebuilding exacerbated Europe’s shortfall, resulting in Europe-bound shipments through August sliding 18% from the same period in 2020, Refinitiv data shows. That left Europe’s gas inventories at 50-60% full by late summer, compared to 80% in the same period last year. The current re-stocking wave is now fuelling Europe’s surge in gas prices. WILL SUPPLIES BE FORTHCOMING? Apart from COVID-19-related project delays, the global energy sector pivot away from fossil fuels towards greener energy supplies has slowed investment in LNG infrastructure. That has hindered the ability of producers to quickly deliver more supply to market, said Charif Souki, co-founder of U.S natural gas company Tellurian. “The world was kind of lulled to complacency because prices were low for five years so no one felt an urge to plan and everyone got very religious on environmental protection and it is wonderful – we should be – but we should look at what things actually work rather than simply what we hope for,” he added.