Natural Gas: A Winning Play in a Fossil-Friendly Era?

In the context of President Trump’s shift towards increasing fossil fuel production, natural gas is poised to thrive. India, the fourth-largest importer of natural gas globally, aims to increase its contribution to the energy mix to 15% by 2030, up from 6.45% in 2023. This market analysis provides an overview of the natural gas industry in India, highlighting growth drivers, challenges, and investment opportunities.

Growth Drivers:

1. Infrastructure development: Sustained capex (capital expenditure) in building out gas transmission infrastructure will increase penetration and conversion of existing users to natural gas.
2. Increasing adoption of compressed natural gas (CNG) vehicles: CNG is growing at a CAGR of 16.3%, while petrol and diesel vehicles growth rates are slower.
3. Proposal to bring natural gas under Goods and Services Tax (GST): Simpler tax structure could reduce costs and promote wider adoption.

Pricing Mechanism:

Natural gas prices are linked to the type of field, and industry players are regulated under the administered price mechanism (APM). New oil fields and high-pressure high-tension (HPHT) fields have different pricing structures.

Company Performance:

• City Gas Distribution (CGD): Listed CGD players like Indraprastha Gas (IGL), Mahanagar Gas (MGL), GAIL, and Adani Total Gas (ATGL) have seen their profits drop due to reduced APM gas allocation. However, demand growth from domestic and CNG segments has been strong.
• GAIL: The gas transmission company has seen volume growth and guides for 7% volume growth in the next two fiscal years.
• Petronet LNG: The state-owned entity is responsible for LNG import and regasification. Throughput has been the highest ever, and a brownfield expansion is planned.
• ONGC and Oil India: These state-owned companies are involved in exploration and production (E&P) of crude oil and natural gas. Their revenues are tied to oil and gas prices.

Valuation and Dividend Yield:

• IGL has a dividend yield of 5.2%, making it an attractive play.
• GAIL has a dividend yield of 4%, with a relatively low PE ratio.
• PLNG has a dividend yield of 3.3%, with a planned capacity addition and long-term contracts to source LNG.
• ONGC and Oil India have dividend yields of 5.6% and 3.2%, respectively.

In conclusion, with the rise of fossil fuels, natural gas is likely to thrive in India. Investors can consider plays like IGL, GAIL, and PLNG for their potential in the sector.

Adani Total Gas Ltd (ATGL), a joint venture between Adani Group and TotalEnergies, plans to invest Rs 16,000 crore over the next seven years to expand its network of CNG stations and pipeline infrastructure to cater to India’s growing demand for natural gas. As of December 2024, ATGL has a CNG station network of 605 stations and 922,000 domestic homes on piped natural gas, with a pipeline infrastructure of 13,000-kilometer length. The company is also expanding its electric vehicle (EV) charging points, aiming to reach 3,000 points by March-April this year, with a current presence in 20 airports across India.

ATGL is also pushing into the liquefied natural gas (LNG) for transport and mining (LTM) business, having commissioned its first LNG station in Tirupur, Tamil Nadu, last year. The company plans to build a network of 50 LNG retail outlets along major highways, ports, mines, and industrial hubs, investing Rs 200-250 crore over the next 3-5 years. Setting up an LNG station can cost up to Rs 8-12 crore, while a fuel retail outlet costs only up to Rs 1.5 crore.

The company is optimistic about the natural gas consumption story, driven by the growth in industries, logistics, and transportation sectors. The improved road infrastructure and liquefied natural gas pricing have made the long-haul LNG trucking segment attractive for energy companies. With its strong presence in CNG, piped natural gas, and LNG segments, ATGL is poised to capitalize on the growing demand for natural gas in India.

The article discusses the delay in connecting the Adani Total Gas Limited (ATGL) City Gas Station (CGS) in Panambur, Mangaluru, with the Kochi-Koottanad-Bengaluru-Mangaluru natural gas trunk pipeline of GAIL. The delay is due to a long-pending permission issue with Kudremukh Iron Ore Company, according to a reply given in the Lok Sabha by Union Minister of State for Petroleum and Natural Gas Suresh Gopi. The Minister stated that the establishment of Compressed Natural Gas (CNG) stations is part of the development of City Gas Distribution (CGD) network, which is carried out by authorized entities as per their Minimum Work Programme (MWP).

The Udupi District Geographical Area has been authorized to ATGL for the development of CGD network, with a target to establish 11 CNG stations by 2030. As of November 30, 2024, ATGL had established 10 CNG stations in the Udupi district GA. However, due to the delay, ATGL is currently catering to the demand through cascades from neighboring areas and has increased its cascade capacity. The Minister assured that the issue will be resolved soon, and the CGS in Panambur will be connected to the pipeline once the permission issue is resolved with Kudremukh Iron Ore Company.

The article also mentions that the shortage of CNG in Udupi district has resulted in autorickshaw drivers waiting in long queues in front of CNG pump stations. The Member of Parliament, Kota Srinivas Poojary, questioned the government on the steps taken to resolve the issue, and the Minister’s response highlighted the challenges faced by ATGL in connecting the CGS in Panambur with the pipeline. Overall, the article discusses the challenges and delays faced by ATGL in establishing a CGS in Panambur, which is essential for the development of the CGD network and meeting the demand for CNG in the Udupi district.

Adani Total Gas Limited, a joint venture between Adani Group and TotalEnergies, has reported a 17% decline in its net profit for the fiscal year 2022. The company’s net profit stood at ₹1,231 crore (approximately $164 million) compared to ₹1,494 crore (approximately $197 million) in the previous fiscal year.

The decline in profits can be attributed to the reduction in APM (Arm’s Length Tariff) gas prices, which is a key factor that affects the company’s profitability. The APM gas price is set every six months by the Petroleum and Natural Gas Regulatory Board (PNGRB). The recent reduction in APM gas prices has resulted in a significant decline in Adani Total Gas’s revenue.

The company’s revenue from operations declined by 13% to ₹6,652 crore (approximately $874 million) in the current fiscal year, compared to ₹7,643 crore (approximately $994 million) in the previous fiscal year. The decline in revenue is mainly due to the reduction in gas prices, which has impacted the company’s profit margins.

Despite the decline in profits, Adani Total Gas has reported a 14% increase in its gas sales volume, driven by its expanding customer base and increasing demand for natural gas in various industries. The company’s gas sales volume stood at 2.3 million standard cubic meters per day (mmscmd) in the current fiscal year, compared to 2.1 mmscmd in the previous fiscal year.

Adani Total Gas is one of the leading natural gas distributors in India, operating in multiple segments including industrial,commercial, and residential sectors. The company is exploring opportunities to diversify its customer base and expand its revenue streams beyond the traditional industries it serves.

In a statement, Adani Total Gas Managing Director, Pransh Bedekar, said that the company is committed to providing reliable and efficient gas supply to its customers despite the challenges posed by the reduction in APM gas prices. He said that the company is exploring ways to mitigate the impact of the price reduction and is working on increasing its scale and diversifying its revenue streams.

Overall, Adani Total Gas’s decline in profits can be attributed to the reduction in APM gas prices, which has impacted its revenue and profit margins. However, the company’s efforts to expand its customer base and diversify its revenue streams may help it to recover from the current profitability challenges in the future.

CNBC-TV18 reported that Adani Total Gas, a joint venture between Adani Group and TotalEnergies, has received a 20% increase in allocated gas from the PNG (Piped Natural Gas) and NTPC (National Thermal Power Corporation) fields, effective January 2023. This surge in allocation is significant, as it will enable Adani Total Gas to strengthen its market share in the Indian city gas market. The increased allocation is expected to bolster the company’s position as a leading player in the city gas market, providing cleaner and more affordable fuel to Indian households and industries. The additional gas allocation is also expected to support Adani Total Gas’s expansion plans, particularly in the pipeline, LPG, and industrial gas segments. This news is expected to benefit the company’s financials, as it aims to expand its presence in the domestic gas market, particularly in the cooking gas and industrial segments. The Adani-TotalEnergies joint venture aims to cater to a significant portion of India’s demand for gas, particularly in the city gas and commercial segments.

The Indian government has reallocated natural gas from LPG production to city gas retailers, such as Indraprastha Gas Ltd and Adani-Total Gas Ltd, to meet their requirement for CNG/piped cooking gas supplies. This move aims to resolve the recent price hike of CNG by Rs 2-3 per kg, which made it less attractive compared to alternate fuels like diesel. The government has cut supplies of low-priced natural gas from old fields to city gas retailers by 40% since October, leading to price hikes. To address this, the Ministry of Petroleum and Natural Gas has ordered a cut in gas supplied to state-owned GAIL and ONGC for LPG production and diverted those volumes to city gas entities. The diverted gas will be used to meet the demand for CNG/piped cooking gas in the January-March quarter. The government will likely bear the cost of higher production, as it subsidizes domestic cooking gas LPG. The allocation change is expected to take a couple of weeks to implement, with city gas retailers likely to receive increased supplies from mid-January.

Adani Total Gas Limited, a joint venture between Adani Group and Total S.A., has reported a significant increase in its net profit for the quarter ended September 30, 2022. The company’s net profit rose by 71.5% to Rs 167.96 crore, driven by strong growth in its energy business. The company’s total revenue increased by 24.1% to Rs 1,433.43 crore, driven by a 25.5% growth in its gas business and a 22.2% growth in its petrochemicals business.

The company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) also increased by 35.1% to Rs 333.14 crore, driven by improved operating efficiency and lower expenses. The company’s net debt-to-equity ratio improved to 0.54, indicating a significant reduction in its debt levels.

The company’s stock price has also been on an upward trend, with a 14.5% increase in the past one month, driven by the strong quarterly results and improved outlook for the energy sector. Overall, the company’s strong financial performance and improving outlook are expected to drive its growth and profitability in the future.