Oil and Gas Sector Faces Mixed Q2 Results Amid Rising Costs
High gas prices and rupee depreciation to squeeze city gas distributors, while refining margins boost Reliance and GAIL, says Systematix Research.
India's oil and gas industry is bracing for a fragmented performance in the July-September quarter. While some segments are set to thrive due to better margins, others are facing a significant squeeze caused by skyrocketing gas prices and a weakening rupee, according to a new report by Systematix Research.
The Squeeze on City Gas Distributors
The report highlights a challenging period ahead for city gas distributors, which are responsible for providing Compressed Natural Gas (CNG) for vehicles and Piped Natural Gas (PNG) to homes and businesses. The primary culprits behind this pressure are the rising cost of gas procurement and the depreciation of the Indian rupee.
The financial impact is expected to be particularly visible in the following areas:
- Indraprastha Gas: Margins per standard cubic metre are projected to drop by 41 per cent compared to the previous year, even with an estimated volume growth of 7 per cent.
- Mahanagar Gas: Margins are expected to decline by 15 per cent year-on-year, despite a projected volume increase of 9 per cent.
This downturn is driven by significant shifts in global energy markets. Brent crude averaged USD 91.3 per barrel during the quarter, marking a 34.1 per cent increase year-on-year. Furthermore, spot liquefied natural gas (LNG) prices surged by 86.7 per cent to USD 22.1 per million British thermal units. Compounding these issues, the rupee depreciated by 9.5 per cent year-on-year to Rs 95.6 against the US dollar, making imports even more expensive.
Refining and Infrastructure to Lead the Way
In stark contrast to the distributors, the refining and gas infrastructure segments are expected to show resilience and strength. The report suggests that improved gross refining margins and higher operating volumes will act as a tailwind for certain major players.
Key Performers in the Sector
Several companies are positioned to benefit from the current market dynamics:
- Reliance Industries: The oil-to-chemicals business is expected to receive support from improved refining margins and increased operating volumes.
- GAIL India: Higher profitability is anticipated from gas marketing, trading, and pipeline transmission, alongside beneficial tariff increases.
- Petronet LNG: Despite a roughly 7 per cent decline in throughput, the company is expected to report higher earnings. This will be supported by improved regasification margins, contributions from spot cargoes, and tariff hikes.
The report also notes that lubricant sales and energy services may see benefits from volume growth, changes in pricing, and contributions from new assets.
A Divided Outlook
While the overall sector is expected to remain relatively resilient, Systematix Research warns that performance will remain uneven. The divergence in results is a direct consequence of varying operating conditions and different levels of exposure to volatile fuel prices and currency fluctuations. For city gas distributors, the elevated cost of sourcing gas remains a critical pressure point that could overshadow volume growth in the coming months.