Gas pipeline from Kochi to Mangaluru: hurdles crossed, and why it matters
On Tuesday, Prime Minister Narendra Modi dedicated to the nation the Kochi-Mangaluru natural gas pipeline of the Gail Authority of India Limited (GAIL). The key infrastructure project has come about after overcoming protests in Kerala, misconceptions about safety, and a long delay. The terminal, since 2013 The pipeline will deliver liquefied natural gas (LNG) sourced from a terminal in Kochi built by Petronet LNG in 2013 at a cost of Rs 4,500. However, for want of pipeline connectivity, it could not be utilised until now. The terminal’s objective is to supply natural gas for domestic and industrial use in Kerala and South India. It is South India’s first LNG-receiving, regasification and re-loading terminal with a capacity of five million metric tonnes per annum. Phases and sections The project, conceived in 2007, envisages pipelines from Kochi to Mangaluru and to Bengaluru. In the first phase, a 44-km line was laid in Kochi, linking the terminal with local industrial users, including Bharat Petroleum Corporation Limited. To take natural gas to domestic consumers, Indian Oil Corporation (IOC) entered into a pact with Adani Gas Ltd. The second phase of the pipeline passes through seven districts of Kerala to carry natural gas from Kochi to Bengaluru via Palakkad, with another leg taking it to Mangaluru. The Kochi-Mangaluru line (444 km) has been opened while the Bengaluru leg is nearing completion, officials said. Already 2,750 domestic gas connections have been given in Kochi and work for supply of natural gas in other towns is going on. The pipeline supplies 3.8 million cubic metres of gas a day to industrial and residential customers in Kochi and is set to cross 4 million cubic metres in the city itself. Menagaluru has a potential of 2.5 million cubic metres per day, The capacity utilisation of the LNG terminal will go up to 25-30%. Delays since 2007 In 2009, the then CPM-led government headed by V S Achuthanandan gave single-window clearance to the project, which should have been completed in 2013. However, protests took place as local people wanted the alignment along a sea route rather than through inhabited areas; they felt the pipeline was a ticking gas bomb. After the Congress-led government headed by Oommen Chandy came to power in 2011, the CPM, then in opposition, chose to stand with the protesters. When even local leaders of the ruling UDF joined the agitation, the government suspended the survey. GAIL too suspended all contracts. The government even pulled up then Chief Secretary Jiji Thomson for having said the pipeline would be laid at any cost and the protestors would be arrested. During the UDF regime, only 48 km of the 444-km pipeline could be laid. The pipeline was planned at an estimated cost of Rs 29.15 billion in 2009. Due to the delays, its cost went up to Rs 57.50 billion. Expedited by Vijayan While in opposition, the CPM had stood with the agitators. But, after assuming office in 2016, Chief Minister Pinarayi Vijayan placed the GAIL pipeline in his 100-days projects. As Vijayan had the party under his firm control, no one in the CPM or Left Democratic Front questioned his decision, and local leaders stepped back from their protest. The Centre too wanted Kerala to give top priority to the project as the LNG terminal in Kochi was incurring huge losses. To win over landowners, Vijayan increased the compensation amount for the acquired land, and reduced the width of the land to be acquired was reduced. After laying the pipeline, farmers were allowed to cultivate, except deep-rooted crops. Although right wing Muslim outfits Social Democratic Party of India (SDPI) and Welfare Party of India (of Jamaat-e-Islami) led protests in many places, and the protests turned violent in Kozhikode district in 2017, the government ensured that work proceeded under police protection.
LNG’s unprecedented surge to apply brakes on India’s imports, consumption
The unprecedented surge in spot LNG prices has taken Indian buyers by surprise and forced importers to stay away from spot purchases, which would potentially lead to lower throughput at some terminals, reduce gas-based power generation as well as slow consumption in other industrial sectors. With spot LNG prices hitting record highs, analysts and industry officials said throughput at some terminals could fall by about 10%-12% in the first quarter of 2021 due to a slowdown in spot arrivals, although LNG cargoes based on term contracts were expected to flow in as per schedule. “The quick change in the market dynamics has taken Indian LNG buyers by surprise. A lot of Indian buyers can’t afford to pay these prices. We will see demand destruction across various sectors,” said a senior official at a leading Indian LNG firm. “Whatever little availability is there in the global spot market, China is taking those cargoes.” JKM, the benchmark for Asian spot LNG prices, surged to an all-time high at $21.453/MMBtu on Jan. 8 amid record low temperatures in North Asia, high freight rates, congestion in the Panama Canal and supply disruptions. The West India Marker (WIM), the benchmark for spot LNG prices delivered to India, hit an all-time high at $17.925/MMBtu on Jan. 8, S&P Global Platts data showed. A leading Indian LNG importer said that the country could see LNG imports dropping to 5.5-5.7 million mt in Q1 2021, compared with 6.5 million mt in Q4 2020. Gas-based power generation Indian re-gasified LNG based power generation is likely to drop in India in Q1 due to record high LNG prices, sources said. With WIM surging close to $18/MMBtu for February-delivery cargo, the spark spread for the power sector is expected to remain in the negative territory. Even after accounting for the maximum traded electricity price on Indian Energy Exchange in February 2020 at Indian Rupee 5/KWh, the spark spread would be at about negative Indian Rupee 6.50/KWh for February with the current spot LNG prices in India. “Gas based power generation is economical for us if WIM is at $4.00/MMBtu or the delivered price of gas at the burner tip is no more than $5.50/MMBtu,” a major Indian utility said. LNG demand in India is also expected to take hit from other sectors such as city gas distribution and industrial customers, with end-users switching to other alternative fuels such as fuel oil, LPG and naphtha. “Refineries in India which have dual fuel power generation capabilities have already started switching from LNG January onwards. Reliance did not buy any LNG cargoes for January and is probably consuming a third of the gas volumes which they did earlier in 2020,” an Indian end-user said. Most of the recent tenders issued by Indian LNG importers seeking December-February cargoes, such as GSPC, Petronet LNG, IOC and Reliance, have been not awarded due to lack of spot cargo availability or higher offers. IOC was last heard to have procured a Feb. 21 DES West India cargo at high $13.00/MMBtu level on Jan. 4 2021. “LNG importers are curtailing supply for RLNG now since they haven’t been able to secure supply due to high prices and the tight market. Most of the supply is coming from the existing inventory at the LNG terminals,” an Indian end-user said. Changing dynamics Jeff Moore, manager for LNG analytics at Platts said that given the unprecedented spot prices the market is seeing right now, it’s no surprise that Indian end-users would turn down their spot supplies, especially compared to Q1 last year. “We are basically in the exact opposite situation now with essentially zero spot supply available which is leading to historic LNG prices compared to contract prices based on oil, landed LNG prices from the US or European reloaded prices,” Moore said. The steep rise in spot prices have ensured lower offtake of LNG in India and many prompt cargo tenders have not been awarded, while shipping slots have gone unutilized, traders said. “What we saw in January and February of 2020 where coal-to-gas switching contributed to incremental demand will definitely not happen and there is a possibility for negative growth in LNG volumes for January and February 2021,” said a senior official at an international trading firm based in India. “Some sort of rationing of RLNG has also happened since early-December 2020 and that continues into January 2021 as well. Fertilizer and other industrial players who depend on LNG will have an impact on their production as it’s not easy to switch to an alternative fuel,” the official added. Platts Analytics expects the rise in gas prices could see increased coal import demand and potential gas-to-coal switching from the non-power sector, especially the ceramics and industrial sectors in the southern regions that are reliant on gas consumption. “We have also seen a recovery in thermal coal railed to the non-power sector. It has returned to 2019 levels,” said Matthew Boyle, senior coal analyst at Platts Analytics.
Strong recovery in oil and gas volumes likely in 2021-22: ICRA
The domestic demand for petroleum products is expected to increase at a healthy rate of 8 to 10 per cent in FY22 on a year-on-year basis, ratings agency ICRA said in a report. Accordingly, the report said a growth in economy and pick-up in industrial activity. The report explained that growth in Motor Spirit (MS) consumption is expected due to preference for personal mobility while higher off-take of High Speed Diesel (HSD) and industrial fuel would likely be driven by a pick-up in economic activity. As per the report, Aviation Turbine Fuel (ATF) demand is expected to lag due to the discretionary nature and the perceived risk of air travel. According to Prashant Vasisht, Vice President and Co-Head, Corporate Ratings, ICRA, “Though, refinery capacity utilisation levels are recovering and were 89 per cent in October 2020, refining margins remained weak due to the global supply overhang.” “Going forward in FY2022, the refinery margins are expected to remain low owing to significantly lower ATF demand vis-a-vis pre-Covid levels. Even though, there have been announcements of the closure of a number of refineries in CY2020 in the US, Europe and Asia, weak refinery economics are expected to be protracted.” Besides, Vasisht cited that gross under-recoveries are expected to be moderate at Rs 15 billion in FY2022. “Low gross under-recovery levels and moderate crude oil prices should lead to lower working capital borrowings and interest costs. Additionally, the Government of India’s divestment of Bharat Petroleum Corporation Limited (BPCL) would be a key monitorable to determine the future competitive dynamics in the refining and marketing sector,” he said. Furthermore, the report pointed out capex and investments are expected to be healthy in FY22, as companies make up for the time lost due to restrictions and lockdowns in FY21. It said a clearer outlook on demand and prices, and a greater impetus for local manufacturing under ‘Aatmanirbhar Bharat’ are expected to spur demand over the long term. “The debt levels are expected to decline owing to lower capex undertaken in FY2021 and higher cash accruals in FY2022, even though several companies have raised bonds or Non- Convertible Debentures (NCDs) to capture low interest rates. The debt levels would moderate to nearly Rs 4.9 lakh crore by FY2022 end from Rs 5.8 lakh crore at FY2021 end.” “The credit metrics are likely to improve in FY2022 due to a decline in debt levels and improvement in profitability.” Additionally, the credit profile of the entities in the oil and gas sector should remain stable, given the increase in crude oil realisations, stable returns from pipelines, healthy demand growth, dominant market position, strong financial flexibility and headroom in key credit metrics.
Include natural gas under GST to push for gas-based economy: Industry
The government should bring natural gas under the Goods and Services Tax (GST) regime to realise Prime Minister Narendra Modi’s vision for a gas-based economy and raising the share of the environment-friendly fuel in India’s energy basket, the industry has said. Natural gas is currently outside the ambit of GST, and existing legacy taxes — central excise duty, state VAT, central sales tax — continue to be applicable on the fuel. “Non-inclusion of natural gas under GST regime is having an adverse impact on its prices due to stranding of taxes in the hands of gas producers/suppliers and is also impacting natural gas-based industries due to stranding of legacy taxes paid on it,” the Federation of Indian Petroleum Industry (FIPI) said. In a pre-Budget memorandum to the Finance Ministry, FIPI, which boasts of members from across the oil and gas spectrum, said the value-added tax (VAT) rate on natural gas is very high in different states — 14.5 percent in Uttar Pradesh and Andhra Pradesh, 15 percent in Gujarat, 14 percent in Madhya Pradesh. “Since gas-based industries do not get the benefit of a tax credit of VAT paid on purchases of natural gas, it is resulting in an increase in the cost of production of such industrial consumers and would have an inflationary effect on the economy,” it said. Inclusion of natural gas under the GST ambit will have a positive impact on gas-based industries, promote usage of the fuel and avoid stranding of taxes, it said. The prime minister has set a target of raising the share of natural gas in the country’s primary energy basket to 15 percent by 2030 from 6.2 percent currently. Greater use of natural gas will cut fuel costs as well as bring down carbon emissions, helping the nation meet its COP-21 commitments. FIPI also sought rationalization of GST rate on service of transportation of natural gas through the pipeline. Presently, GST on the service of ‘transportation of natural gas through the pipeline’ is applicable at the rate of 12 percent (with ITC benefit) and at the rate of 5 percent (without ITC benefit). Further, as per GST laws, two different registered units of an entity are considered distinct persons and inter-unit billing for the supply of goods/services between such units is required to be carried out with applicable GST. Considering such provisions under GST laws, the lower GST rate of 5 percent (without ITC benefit) could not practically be implemented so far, FIPI said. “Input Tax Credit (ITC) of GST payable on the inter-unit billing, for services of transportation of natural gas, will not be available to the recipient unit of GAIL,” it added. Natural gas is a much cleaner source of energy than other alternatives available and is primarily used in priority sectors like power, CNG and fertilizer. “The high rate of GST on the services of transportation of goods by pipeline will make natural gas costlier for power and CNG sector where ITC of GST paid on transportation of natural gas is not available as the output product is not covered/exempted under GST,” it said. It suggested GST of 5 percent on services of transportation of goods by pipeline be provided with ITC benefit. “This will lead to lower cost of transportation of natural gas and will help in the promotion of cleaner sources of energy for power and CNG sector,” it said. “This will also enable natural gas to compete with other alternative polluting fuels like furnace oil, naphtha, etc.” FIPI also sought rationalization of GST on the service of regasification of LNG. Since domestic production of natural gas is not enough to cater to the increasing demand, import of liquefied natural gas (LNG) at a large scale is required to augment the supply for use in priority sectors such as fertilizer and CNG. The imported LNG has to be re-gasified and converted into natural gas (known as R-LNG – Regasified Liquefied Natural Gas) for transportation and consumption in India. The activity of regasification of LNG presently attracts a GST of 18 percent. “The levy of GST at a higher rate of 18 percent on the regasification of LNG increases the landed cost of imported LNG for domestic industrial consumers,” it said, adding that regasification of LNG is under GST ambit, resulting in the stranding of taxes and a higher rate of tax. It suggested that regasification may be considered as manufacturing and GST of 12 percent levied on a job work basis.
20% ethanol blending in petrol can create economic activity of Rs 1 lakh crore: Petroleum Secretary
Blending 20 per cent ethanol with petrol can help create economic activity of over Rs 1 lakh crore every year in the country and save precious foreign exchange, Union Petroleum Secretary Tarun Kapoor said on Monday. Currently, the petrol sold in the country has above 5 per cent of ethanol, a bio-fuel extracted from various locally available sources. “We have done a calculation and we see that with the current programmes we have, which means that 20 per cent ethanol blending in petrol and the 5,000 compressed biogas plants which we want to set up, we could have an economic activity worth Rs 1 lakh crore every year,” Kapoor said. He was speaking at an event organized by Repos Energy and Tata Motors. Just as the world is switching to newer sources of energy as part of a shift away from fossil fuels, a transition is also underway in India, he said. However, the country needs more energy, and the movement is from coal to oil or gas in India. If India has to move to renewable energy and gas, it will have to be seen what can be produced within the country, Kapoor said, adding that this is where bio-fuels and solar power become very important. Adoption of bio-fuels as part of the transition can save a lot of forex, create large number of entrepreneurs, deliver jobs and also help create an economy based on bio-fuels, he said, asking start-ups to make the most of this opportunity. Opportunities exist for start-ups even from a manufacturing perspective, Kapoor said, adding that the state-run enterprises in oil and gas sector alone spend over Rs 1.5 lakh crore per year on capex, and a bulk of the equipment is imported. If one adds the private sector’s capex, it becomes a capex of nearly Rs 2 lakh crore per annum which offers a slew of opportunities, he said, stressing that the government wants to focus on ‘Make in India’ programme.
India’s annual oil usage falls for the first time in 21 years
India’s overall petroleum demand in 2020 fell for the first time in more than two decades as the Covid-19 pandemic shuttered businesses and factories, crimping the appetite of one of the world’s biggest consumers. Demand for total petroleum products — including diesel, gasoline and jet fuel — slid 10.8 per cent from a year earlier, the first annual contraction in data going back to 1999, according to Bloomberg calculations of provisional figures published by the oil ministry’s Petroleum Planning & Analysis Cell. Consumption was also at a five-year low of 193.4 million tons. Fuel demand from Asia’s second-biggest oil importer collapsed by as much as 70 per cent after it embarked on one of the world’s most stringent lockdowns in March. The drop resulted in a sharp cutback in crude processing and operations at petrochemical plants. The strict restrictions ravaged the Indian economy, which is set for its biggest contraction in annual gross domestic product in records going back to 1952. Prime Minister Narendra Modi’s government has relaxed most of the virus curbs to pull Asia’s third-biggest economy out of the slump. Demand is picking up as restrictions are eased. While monthly consumption of petroleum fuels in December was about 1.8 per cent lower than a year earlier, it was still at an 11-month high, according to the government data. Gasoline consumption last month rose 9.3 per cent year-on-year, the highest since May 2019, on increased use of personal vehicles. Diesel demand was 2.8 per cent lower than a year earlier.
OPINION: 1,000 LNG stations: A dream too big?
On November 19, 2020, the Union Minister for Petroleum and Natural Gas, Dharmendra Pradhan, laid the foundation for India’s first 50 liquefied natural gas (LNG) fuel stations. Planned along the National Highways and Golden Quadrilateral, the stations will connect the four metros cities of Delhi, Mumbai, Chennai, and Kolkata. This announcement finally settles the multi-year long debate of whether the infrastructure should come first or if demand must be established with vehicles already on the ground. The government has also announced an investment of Rs 10,000 crore to set up 1,000 LNG stations—through investments from both private and public sector companies—in the next three years. Now the question is: will demand grow fast enough to keep these investments viable and encourage product development of LNG-fueled vehicles? As a supercooled natural gas, LNG is a favorable option for long-haul buses and trucks due to its higher energy density than compressed natural gas (CNG) and its ability to achieve a 600-800 kilometers run on a single fill. Plus, it is 30 to 40 percent cheaper than diesel. So why are we not seeing more LNG-fueled vehicles on the road? The problem of demand creation for LNG as a fuel remains unsolved. Historically, the adoption of new transportation technology has not been driven by pure economics and there are several roadblocks to large-scale adoption. Learning from CNG growth in India Looking back 20 years ago, Delhi considered the adoption of CNG as a fuel, even in light of concerns related to performance and additional adoption costs. Ashok Leyland and Telco received type approval from Automotive Research Association of India (ARAI) for their CNG engine. Telco estimated the cost to retrofit was about INR 7.3 lakh per bus (plus taxes), while Ashok Leyland quoted INR 6.4 lakh per bus (plus taxes) [1] . Since the adoption of CNG was mandatory, the scale at which CNG vehicles were manufactured helped bring costs down. Yet the initial costs to retrofit existing vehicles or purchase new technology vehicles were still high enough to be a deterrent in 2000. And we still face this challenge for adoption of LNG. Today it costs about Rs 10 lakh more to retrofit or purchase an LNG truck compared to a diesel truck. Even in an established CNG market, demand growth was not always purely driven by fuel price and policy measures were required. We see similar trends with electric vehicles where the government reduced taxes/levies to overcome the prohibitive initial cost of a vehicle. Figure 1 below shows that policy mandates—including environment compensation charges—had a greater impact on CNG adoption in Delhi/NCR in 2013-2016. OPINION: 1,000 LNG stations: A dream too big? How trucking industry can adopt LNG vehicles Although large-scale infrastructure planning for the initial 50 LNG fuel stations is moving ahead, the native development of LNG trucks by original equipment manufacturers (OEMs) lags behind and is also competing with Bharat Stage VI (BSVI) and electric vehicles (EVs). Only four LNG-based passenger vehicles were registered in India in 2019 and 2020 [2]. Since LNG-fueled vehicles are expensive (the additional cost is recovered through fuel cost savings), a minimum utilization assurance is needed. This is a key ask by fleet operators who are already taking technology and other associated risks with the adoption of a new vehicle type. In general, since fleet operators look at a payback of four years for a diesel truck to ensure recovery of the additional costs, the utilization assurance should be around 90,000 kilometers (for a 28-ton weight carrying capacity vehicle). What we see in the trucking industry is not supporting this economic hypothesis. Some fleet operators shared that they are only getting 60,000-70,000 kilometers per year for vehicles expected to run more than 90,000 kilometers. Figure 2 shows that year-over-year sales growth of heavy goods vehicles has been on the decline since 2018. Then the impact from COVID-19 led to extremely low utilization and sales of vehicles in 2020, with agriculture and essential services being the remaining source of demand. OPINION: 1,000 LNG stations: A dream too big? Measures to create sustainable demand We must take meaningful measures to create sustainable demand and meet the government’s goal of developing 1,000 LNG stations in the next three years. Providing subsidies to maintain the price differential between diesel and LNG trucks is not a sustainable solution and, in this case, to maintain the existing tax differential between diesel and LNG retail price is a minimum ask by every LNG retail player. However, support from government owned organizations (like oil marketing companies) can take lead for conversion to LNG based trucks and even using LNG-fueled vehicles to deliver LNG to stations may present more viable options. a) Using LNG heavy duty vehicles by Oil Marketing Companies (OMCs): An initial step could be that government owned OMCs start utilizing LNG vehicles as a part of their fleet for transporting petroleum products. Adopting a model similar to EV adoption by Energy Efficiency Services Limited (EESL) where more than 1,514 e-cars have been deployed or are under deployment for government organizations—may offer some insights for model adoption in the trucking industry. LNG trucks can be either leased or outright purchased to replace the existing diesel vehicles leased by government organizations [3]. Oil marketing companies and other public sector undertakings have trucking requirements that can be mapped to the initial set of planned 50 LNG stations. b) Use of LNG as a fuel in vehicles transporting LNG: Another area which makes sense is to initiate the use of LNG as a transportation fuel in trucks that transport LNG to CGDs or LNG retail outlets. With more than 50 LNG retail stations planned and multiple CGDs looking at hub and spoke models, the accessibility and availability of fuel for these categories of vehicles should not be a challenge. Exploring these models and more robust policies that promote the adoption of LNG vehicles over diesel will set the wheels of market establishment in motion. Conclusion The Government of India is leaving no stone
Malaysia postpones biodiesel mandate rollout to 2022 – state media
Malaysia will delay the nationwide rollout of its B20 palm oil biodiesel mandate to early 2022 to prioritise an economy that has been battered by the COVID-19 pandemic, state news agency Bernama reported late Thursday. The mandate to manufacture biofuel with a 20% palm oil component – known as B20 – for the transport sector was first rolled out in January last year, and was set to be fully implemented across the country by mid-June 2021. “Nationwide we are giving priority for the government’s post COVID-19 economic recovery plan, which is more crucial,” Plantation Industries and Commodities Ministry secretary general Ravi Muthayah was quoted as saying. “We have limited resources and must identify priorities,” he said. Rival and top producer Indonesia has also pushed back plans to raise the bio-content of palm oil-based biodiesel to 40% and instead raised export levies to finance its B30 programme after the pandemic triggered a collapse in crude oil prices. A rally in Malaysia’s benchmark crude palm oil prices to its highest in nearly a decade has also widened its premium over crude oil, making palm a less sustainable option for biodiesel feedstock.
69% people want reduction in excise duty on petrol and diesel: Survey
A survey has said that 69 per cent respondents want the government to cut excise duty on petrol and diesel to bring down the fuel prices that have touched record highs. As central excise is one of the two major components of the prices of fuel, moderation in the duty will provide succour to people who are facing the heat of economic slowdown and income disruption due to the COVID-19 pandemic, according to the survey conducted by Local Circles, a community social media platform. “The aggregate percentage of responses from 69 per cent citizens want the government to reduce excise duty on petrol and diesel. Of which, the majority of citizens want the prices to be reduced by 20 per cent or by Rs 6 or more for both petrol and diesel,” it said. If done, it will reduce the price of petrol to Rs 78 per litre and diesel to Rs 68 per litre in Delhi and similarly across India where the impact to the citizens is even higher, it said, adding, Delhi has one of the lowest prices of diesel and petrol in the country. The survey had 9,326 responses from citizens residing in 201 districts of India. Of this 71 per cent respondents were men while 29 per cent respondents were women. Petrol price on Thursday scaled to an all-time high of Rs 84.20 per litre in the national capital after state-owned fuel retailers hiked rates for the second day in a row. Petrol price on Thursday was hiked by 23 paise per litre and diesel by 26 paise a litre, according to a price notification from oil marketing companies. In Delhi, petrol now costs Rs 84.20 per litre and diesel is priced at Rs 74.38. In Mumbai, petrol comes for Rs 90.83 a litre and diesel for Rs 81.07. Of the Rs 84 per litre that commoners pay at the pump, the actual value of the petrol is only Rs 26 while the rest are taxes, duty and dealer’s commission, the survey said. The central government charges Rs 32.98 (125 per cent of the base price) as excise and the Delhi government levies Rs 19 (72 per cent of the base price) per litre on petrol Value-added Tax (VAT), it said, adding, similar levies in commission and taxes are applied on diesel.
OPINION: Oil & Gas sector to post robust volume growth in FY22; Expect more tax incentives in budget
The Covid-19 pandemic and subsequent lockdowns coupled with economic slowdown had severely impacted the demand for petroleum oil products which are now on a firm recovery path. The demand for these products is expected to register robust growth of 8-10% over FY2021 levels. The demand for Aviation Turbine Fuel (ATF) will however, remain a key laggard in view of flight operations and air travel restrictions. Its demand is expected to remain significantly below pre-Covid levels in FY2022. Better days ahead are also expected for refineries and their capacity utilisations will be healthy, though gross refining margins will remain subdued owing to global supply overhang amid demand recovering from the pandemic. As for the demand for natural gas, the same is expected to expand by ~10% in FY2022 driven by commencement of operations by several fertilizer plants, increase in city gas distribution (CGD) operations as several GAs complete their initil infrastructure building phase and new customers getting connected to the gas grid post the expansion in the trunk pipeline network. More importantly, after years of decline in domestic gas output, production is set to rise significantly owing to commencement of production from the KG basin fields of ONGC and RIL-BP. On the flip side, despite production increases, domestic gas prices as per the modified Rangarajan formula remain extremely low ($1.79/mmbtu for H2 FY2021) and a loss-making proposition for production from even benign geologies. Regarding upstream producers, their margins are estimated to rise significantly in FY2022 over FY2021 due to higher average crude oil prices. The gas utilities sector too will witness healthy margins in the next fiscal owing to regulatory protection or dominant market position of most entities in the sector. Some of the new pipelines though are expected to be sub-optimally utilised in the initial years owing to lack of adequate volumes. The Unified Tariff regime implemented by the PNGRB while revenue neutral for the natural gas pipeline operators reduces the tariff paid by far off consumers. Players are expected to cover the lost ground due to restrictions and lockdowns in FY2021 and go for healthy capex and investments in FY2022. However, debt levels are expected to decline in FY2022 to around Rs. 4.9 lakh crore by FY2022 end from Rs 5.8 lakh crore at FY2021 end. The credit metrics (interest coverage – 7.3x and debt/OPBDITA – 2.0x) too are likely to improve in coming year due to a decline in debt levels and improvement in profitability. Higher crude oil realisations, stable returns from pipelines, healthy demand growth, dominant market position, strong financial flexibility and headroom in key credit metrics will result in stable credit profile of the players’ in the oil and gas sector. Coming to industry’s budget wish list, given the weak outlook for international gas prices, players expect a provision of a floor for domestic gas prices. Additionally, they want 20% ad-valorem cess on crude oil production to be reduced as it curtails realisations and cash accruals of upstream companies in a high crude oil price regime. Also, to promote the use of natural gas as fuel, the incumbents want Liquified Natural Gas imports be exempted from customs duty as crude attracts nil duty while LNG demands 2.5% duty. Further, due to crude oil, natural gas, HSD, MS and ATF being out of the ambit of GST, the oil industry is faced with stranded taxes and burden of compliance with a dual taxation regime. Accordingly, they expect crude oil, natural gas and petroleum products to be brought under GST to enable free flow of credits and avoid stranded taxes.