Sector News

Indian Oil bets big on growing demand for natural gas

September 19, 2016

State-run refiner Indian Oil Corp aims to be one of the top natural gas suppliers in India in the next five years as it bets on growing demand for transport and factories.

The company is aiming to generate 15 percent of revenues from its gas supply and distribution business by 2021, Chairman B Ashok told Reuters on the sidelines of a news conference on Wednesday.

He said the company has already committed 180 billion rupees to building gas distribution infrastructure across the country and has booked LNG regasification facilities.

Currently the gas trading business contributes less than 5 percent to its revenues, added G K Satish, the company’s director of planning and business development.

Prime Minister Narendra Modi’s government has plans to move India to becoming a gas-fuelled economy by boosting domestic production and buying cheap liquefied natural gas as the country seeks to cut its greenhouse emissions.

This is expected to open up a huge demand for natural gas in the coming years.

“We have made our plans depending on the projections of the next five to 10 years,” Ashok said.

Indian Oil, which is India’s biggest refiner and marketer of petroleum products, has secured up to 13 million tonnes of LNG regasification capacity across a number of planned import terminals in India which includes its own 5 million-tonne terminal under construction in Ennore, Satish said.

The company has also lined up supplies of LNG for a similar amount from the United States, Canada and Australia.

Indian Oil marketed 1.929 million tonnes of natural gas during the 2015-2016 financial year, registering a 6.9 percent growth in sales over the previous year.

Analysts are however cautious over the expansion plans as they say that fully matching sales with supplies could prove a challenge.

“In the LNG business it is important to tie-up with customers so that there is an assurance that the volumes that the company has booked will be sold. In case there are no customers, Indian Oil could be stuck with a take-or-pay clause which can hit its margins,” said Dhaval Joshi, analyst with brokerage Emkay Global Financial Services.

($1 = 66.8143 rupees)

By Promit Mukherjee

Source: Reuters

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