India planning carbon credit market for energy, steel and cement
India is planning to start a carbon trading market for major emitters in the energy, steel and cement industries, as part of its efforts to hasten the transition to cleaner fuels. The platform is likely to be announced by Prime Minister Narendra Modi at Independence Day celebrations on August 15, according to people with the knowledge of the plan. It’s been in the works since March, when consultation with ministries and companies began, said the people who asked not be named because discussions are private. The Prime Minister’s Office and government think tank NITI Aayog didn’t immediately respond to emails seeking comment. The market would initially be limited to hard-to-abate sectors, allowing participants to trade credits earned from cutting emissions, the people said. One of the goals is to ensure state-owned energy firms like Oil & Natural Gas Corp., Indian Oil Corp. and NTPC Ltd., as well as steel and cement companies, can benefit from planned investments in carbon-capture projects, they said. India, the world’s third-biggest emitter, surprised pundits by announcing a plan to achieve net zero by 2070 at the COP26 summit in Glasgow late last year. While that’s a decade behind its fellow Asian behemoth China, the South Asian economy is less developed and faces greater climate challenges. The country is looking to cut 1 billion tons of emissions by 2030 as a first step in reaching its goal. India’s proposed market follows a similar one in China, which last year launched a mandatory trading system for all large power plants. But the market has been plagued by delays and problems with data collection, and has seen only lackluster buying and selling of allowances. A detailed plan for establishing the carbon market is likely to be ready in the fourth quarter, the people said. India is also looking to introduce methanol-blended fuels in land and marine transport, build more carbon capture projects, and encourage the adoption of electric vehicles as part of its climate goals, they said. The carbon-market plan was previously reported by the local Mint newspaper.
City gas distributors face uncertainty on high gas prices
Spiralling global prices of natural gas amid a surge in demand from Europe and lower supplies from Russia is posing a serious challenge for India’s gas industry. The industry was until now in a sweet spot with growth spurred by strong demand for the cleaner fuel and comparatively cheaper gas prices. However, the prevailing higher prices sparked by geopolitical issues since Russia’s invasion of Ukraine are now set to hit consumer demand as well as the profitability of Indian gas suppliers. US benchmark Henry Hub natural gas spot price at over $8 per mmBtu (million British thermal units) has more than doubled on a year-to-date basis. Prices are likely to stay elevated considering the squeeze in Russian supplies. Also, approaching winters and consequent spike in demand from Europe is likely to maintain pressure on spot gas prices, at least till the winter season recedes or till supplies from Russia improve, according to analysts. Analysts at Kotak Securities said Nymex natural gas price has managed to hold close to $8/mmBtu levels. With mixed factors in place, there might be some consolidation near $8/mmBtu before the next major move, the analysts said. The prevailing high international gas prices and consequent increase in domestic gas prices, as well as spot gas prices, are negative factors for city gas distribution (CGD) firms. These companies had continued benefiting from rising demand and volume growth in a lower gas price environment and enjoyed good margins, too. However, the latest scenario has raised concerns on their sales and profit margins. Price hikes taken by the companies to pass on the higher costs are, on one hand, likely to impact demand and hence, volume growth, said analysts. The strong high double-digit growth in volumes seen earlier may be difficult now, they added. “CGDs’ margins are likely to remain subdued sequentially, adversely impacted by the sustenance of higher spot LNG (liquified natural gas) prices in 1QFY23, despite price hikes by companies,” said analysts at Motilal Oswal Financial Services. For Mahanagar Gas Ltd and Indraprastha Gas Ltd, which derive higher contributions from the sale of CNG (compressed natural gas), increase in prices may hit their volume growth while volatility in blended gas prices means uncertainty on the margin front. The June quarter performance of Gujarat Gas will be affected by weak industrial PNG (piped natural gas) volume and moderation in margins on pass-through of lower spot LNG price, said Abhijeet Bora, research analyst for oil and gas at Sharekhan. For Gujarat Gas, industrial gas supplies hold importance. Current high gas prices leading to lower offtakes by industrial units is a key concern for the company. For Gail (India) Ltd, news flow on lower gas supplies from Russia proved to be a sentimental negative, said Avishek Datta, an analyst at Prabhudas Lilladher. Most analysts, however, expect the current scenario of lower supplies from Russia to be temporary. Further, Gail has long-term supply contracts with the US and many other sources. All companies with long-term contracts will stand to gain in the current volatile environment, said analysts. Analysts are optimistic about gas supplies from Russia to India normalizing over time. “We expect gas transmission to be better with pent-up demand, and the petchem business benefit from better utilization at the PATA plant (in Uttar Pradesh),” said Datta. “Gail has enjoyed the alignment of operational macros since the start of 2021, and we expect the macros to support it over the next couple of quarters as well,” he added.