India’s city gas distribution sector could face short-term pressure as disruptions in global LNG supply chains threaten to reduce daily sales volumes. According to a report by CRISIL Ratings, CGD companies may see their volumes decline by 8–10 percent due to reduced availability of imported liquefied natural gas. However, the sector’s profitability is expected to remain stable as companies pass on higher costs to industrial and commercial users while protecting household and transport gas supplies.
India’s city gas distribution (CGD) sector is expected to experience a temporary slowdown in gas sales volumes due to global supply disruptions in liquefied natural gas (LNG), according to a new report from CRISIL Ratings.
The report suggests that daily gas distribution volumes may decline by 8–10 percent in the near term, primarily due to supply shortages affecting imported LNG. Despite the expected drop in volumes, analysts believe the sector’s overall profitability may remain largely protected because CGD companies can adjust prices for industrial and commercial customers.
The disruption comes amid escalating geopolitical tensions in the Middle East, which have created uncertainty in global energy markets and triggered supply chain challenges for LNG shipments.
According to Ankit Hakhu, Director at CRISIL Ratings, the decline in gas distribution volumes is mainly linked to restrictions in the supply of natural gas for industrial and commercial users.
This segment—known as PNG for Industrial and Commercial (PNG I&C)—relies heavily on imported LNG rather than domestically produced gas. As a result, any disruption in global LNG supplies immediately affects gas availability for factories, businesses, and commercial establishments.
Hakhu noted that the industry’s daily sales volumes could fall by nearly 8–10 percent, driven largely by the curtailment of gas supplies to this industrial segment.
India’s city gas distribution system depends on a mix of domestic and imported natural gas supplies.
Approximately 60 percent of the sector’s gas requirements are fulfilled through domestically produced natural gas, while the remaining 40 percent is sourced through imports, mainly in the form of LNG.
This balanced supply structure usually helps ensure stability. However, when global supply chains are disrupted—as seen in the current situation—the impact is felt most strongly in segments that depend on imported LNG.
The supply crunch intensified after Qatar, one of the world’s largest LNG exporters, declared force majeure on certain international deliveries.
The decision followed a production halt at the Ras Laffan Industrial City, a key LNG production and export facility in the country.
Since Qatar accounts for a major portion of global LNG exports, the temporary disruption has had cascading effects across international gas markets. India, which imports a significant share of its LNG requirements, is among the countries feeling the impact of these supply constraints.
Despite the disruption, not all segments of India’s CGD industry are expected to suffer equally.
The sector primarily supplies natural gas across three categories:
Compressed Natural Gas (CNG) used in vehicles
Piped Natural Gas (PNG) supplied to households
PNG for industrial and commercial customers
Together, CNG and household PNG account for nearly 70 percent of total gas consumption in the CGD sector.
These segments are expected to remain relatively unaffected because they rely primarily on domestically produced natural gas, which is supplied under regulated allocation mechanisms.
The government has also prioritised these essential segments to ensure uninterrupted availability.
To safeguard critical gas supply for households and transportation, the government has invoked provisions under the Essential Commodities Act.
A notification issued on March 9 prioritised the allocation of natural gas to:
CNG for vehicles
PNG for households
This step ensures that daily commuters and residential consumers continue to receive uninterrupted gas supplies even during periods of global energy market disruptions.
As a result, households are unlikely to experience major price hikes or supply shortages in the short term.
The PNG I&C segment, which contributes around 30 percent of the CGD sector’s total sales, remains the most vulnerable to LNG supply disruptions.
Since this segment depends heavily on imported gas, the reduction in LNG shipments directly affects industrial gas consumption.
Businesses may need to switch to alternative fuels such as diesel or furnace oil if LNG supplies remain constrained for a prolonged period.
However, CGD companies are expected to adjust prices for industrial and commercial consumers to offset rising costs and maintain operating margins.
Another factor complicating the situation is the limited spare capacity in global LNG production.
According to CRISIL Ratings, most LNG export facilities worldwide are currently operating at 90–95 percent capacity.
This leaves only 10–20 million tonnes per annum of spare supply available globally to compensate for disruptions.
If Qatar’s LNG export volumes—estimated at 77–80 million tonnes annually—remain affected for an extended period, it could tighten global supply further and increase price volatility.
Despite global supply challenges, household consumers are unlikely to face major price fluctuations.
This is because domestic PNG supply operates under the administered pricing mechanism, which currently caps the price of domestic gas at $6.75 per MMBtu.
Similarly, CNG used in vehicles also relies largely on domestically regulated gas supply, ensuring relatively stable pricing for consumers.
While lower sales volumes could reduce revenue growth in the short term, the financial health of CGD companies is expected to remain stable.
According to Gauri Gupta, Team Leader at CRISIL Ratings, the sector’s operating margins should remain largely unaffected due to cost pass-through mechanisms.
However, the reduction in sales volumes could slightly moderate operating cash accruals in the near term.
One major factor supporting the stability of CGD companies is their strong financial structure.
Many large city gas distribution companies currently operate with low or zero debt, allowing them to manage short-term market disruptions effectively.
According to the report, the debt-to-EBITDA ratio for the sector is expected to remain around 1.0 times during the current fiscal year.
This financial stability is also supported by:
Staggered capital expenditure plans
Gradual debt repayments
Strong liquidity reserves
These factors collectively ensure that CGD companies can withstand temporary fluctuations in demand and supply.
Despite the current challenges, the long-term outlook for India’s city gas distribution sector remains positive.
Government initiatives promoting cleaner fuels, rapid expansion of CGD networks, and rising demand for environmentally friendly energy sources are expected to drive growth in the coming years.
While short-term LNG disruptions may temporarily affect industrial gas consumption, the sector’s strong fundamentals and supportive regulatory framework are likely to help it navigate the current supply challenges.