Ind-Ra: Natural Gas Consumption Grows Due to Higher Imports and Domestic Production

India Ratings and Research (Ind-Ra) has published the December edition of its credit news digest on India's oil and gas sector. The report highlights the trends in the oil & gas sector with a focus on domestic production, import, consumption, refining and gross under-recovery, regulatory changes and the recent rating actions.

India's crude oil production decreased marginally 0.4% y-o-y during October 2017. Production volume of Oil & Natural gas Corporation and Oil India Limited increased by 0.9% and 4.1% respectively, while it declined by 4.6% for fields under production sharing contracts during October 2017 on y-o-y basis. India's import dependency of crude oil had been around 82% during April - October 2017. Petroleum Planning and Analysis Cell estimates crude import of 214 metric ton (mt) in FY18 (FY17: 214mt). However, India ordered its first crude cargo from the USA during October 2017 to derive lower price benefit as well as diversify its source basket. This could help India gain higher bargaining power in crude oil sourcing from its existing suppliers.

Refining throughput in October 2017 was 22.1mt which was 5% y-o-y higher. Indian Oil Corporation Limited's ('IND AAA'/Stable) public sector refineries processed higher volume aiding the overall increase in volume. India's petroleum products output was higher by 6.4% y-o-y to 22.4mt during October 2017. On a cumulative basis, the production was 2.8% higher in April-October 2017 y-o-y.

Inventory losses led by an adverse crude oil price movement resulted in a decline in gross refining margins for most of the domestic refiners during April-June 2017. However, rising crude prices during 2QFY18 supported the recovery of refinery margins. Further rising crude prices during 3QFY18 and unplanned shutdown globally during this period would also bolster the refining margins.

Natural Gas production during October 2017 was 1.9% y-o-y higher. The production volume grew for Oil & Natural Gas Corporation (higher 3.9% y-o-y), whereas for Oil India Limited and for 'from private/joint venture fields' it declined y-o-y (negative 1.0% and negative 3.3% y-o-y respectively). Natural Gas consumption increased by 18.6% y-o-y during October 2017. The increase in consumption was largely on account of 11.0% y-o-y increase in imports, supported by higher production.

Natural Gas price has been raised by around 17% to USD2.89/mmbtu for October 2017-March 2018. Prior to this, the gas prices had been revised downward five times consecutively since the implementation of the domestic gas pricing formula in October 2014.

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