India Ratings and Research (Ind-Ra) believes the continued low domestic gas prices applicable for 1HFY22 (2HFY21: USD1.79/mmbtu) would keep benefiting the profitability of end-user industries such as fertilisers and city gas distribution (CGD). However, the profitability of upstream natural gas producers would remain subdued due to lower realisations and higher cost of production. The low domestic price is a result of subdued benchmark prices particularly the Henry Hub (HH) over the reference period 2020.
Natural gas is the primary feedstock for majority of fertiliser production in India and this sector consumes the highest amount of natural gas (29% share) in India, followed by the CGD sector (20% share) and power sector (19%). While the nitrogen-phosphate-potash (NPK) fertiliser manufacturers are largely dependent on imported natural gas, urea manufacturers rely on both imported and domestic gas for their feedstock requirements, which is governed by the pooled gas pricing mechanism.
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