This aerial photo shows two liquefied natural gas (LNG) storage tanks at Dhamla Liquefied Natural Gas Terminal Private Limited (DLTPL) near Dhamla port in Bhadrak district, Odisha state, India, on October 16, 2024.
Puneet Paranipet | AFP | Getty Images
This report comes from this week’s CNBC “Inside India” newsletter, which brings you timely, insightful news and market commentary on the emerging powerhouse and the big players behind its meteoric rise. Like what you see? You can subscribe here.
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India desperately needs energy and is taking action to do so.
As the country’s population grows (already the world’s most populous) and becomes wealthier, its energy needs are expected to rise.
The South Asian country therefore aims to quadruple its natural gas use from current levels by 2030 to meet this demand and achieve GDP growth of 7% or 8% per year.
However, many readers may be wondering why India is buying energy that almost brought Europe to its knees a few years ago.
Russia’s invasion of Ukraine comes as gas prices across Europe skyrocket and Moscow turns off the taps, all but hijacking the continent’s economy. The nature of the gas market therefore means that buyers beg, bribe or coerce sellers into supplying gas to keep the lights on.
So why is India deepening its relationship with this volatile energy source?
It may have no choice; maintaining the status quo means rising energy security risks as the economy grows.
According to the International Energy Agency, more than 80% of India’s energy needs are currently met through coal, petroleum and solid biomass. Imports of both coal and oil increased rapidly as people favored 24/7 electricity and cars.
Oil accounts for more than 70% of the total imports of Russia, Iraq and Saudi Arabia, three countries with weak democratic foundations.
On the demand side, the Indian government is actively pursuing policies that favor vehicles powered by compressed natural gas (CNG), a derivative of liquefied natural gas (LNG).
A man opens the hood of a Blue Energy 5528 liquefied natural gas (LNG) truck to check the engine at a manufacturing plant in Pune, India, on October 11, 2024.
Francis Mascarenhas | Reuters
These vehicles are developing faster than electric vehicles because good fuel distribution networks reduce range anxiety. They’re also generally cheaper on a per-mile basis. This has led to a 33% growth in sales this year to over 500,000 units, with Maruti Suzuki claiming the largest market share.
Earlier this year, the government also unveiled plans to have a third of the country’s heavy-duty trucks run on liquefied natural gas over the next five to seven years instead of diesel, which currently accounts for the majority of the refined fuel.
In addition to transportation, the use of LNG has also grown due to government policies that encourage the use of natural gas for home cooking. The number of pipeline connections increased 250% in the seven years to November 2023, to 11.9 million, according to the Institute for Energy Economics and Financial Analysis. At the same time, the number of households with access to piped natural gas exceeds 300 million.
India also appears happy to import LNG, even from unsavory partners, as long as it helps balance risks elsewhere in its economy. For example, natural gas is a key ingredient in making chemical fertilizers, and domestic production helps improve food security.
Consultancy Rystad Energy predicts that natural gas demand could double by 2040.
As imports increase, this is likely to benefit government-owned entities such as Petronet, which owns two LNG import terminals in the country, and gas distributor GAIL.
Investment banks such as Citigroup Inc. and JPMorgan Chase & Co., as well as local brokers, said the stocks would benefit from steady sales growth without increasing gas prices for consumers.
Indraprastha Gas (IGL), Mahanagar Gas (MGL) and Gujarat Gas are other distribution companies that will benefit from this growing trend.
“We prefer PLNG to GAIL due to a) lower valuation and b) volatility in GAIL’s natural gas trading unit,” JPMorgan analysts said in a note to clients in June. Meanwhile, Citi Analysis “We continue to be optimistic about GAIL, MGL and IGL among natural gas stocks,” Shi said in August.
need to know
Canada accuses India of involvement in Sikh separatist plot. The Canadian government claimed this week that Indian Home Minister Amit Shah was behind a plot against Sikh separatists in Canada. The allegation was revealed by Canada’s Deputy Foreign Minister David Morrison, who told a parliamentary panel that he had confirmed the allegation to a U.S. newspaper.Shah is accused behind conspiracy. India has previously dismissed the claims as baseless.
India is confident of achieving its 7% growth target for fiscal year 2025. The country’s Economic Affairs Minister Ajay Seth said on Tuesday that the goal was “very feasible”. Seth too Optimistic about India’s economic growth This was true in the third and fourth quarters despite a slowdown in capital spending in some states. India’s fiscal year runs from April 1 to March 31 of the following year.
The Reserve Bank of India lowered its second-quarter economic growth forecast. The Reserve Bank of India’s previous forecast showed that India’s GDP growth rate in the second fiscal quarter (July to September) was 7.2%. However, the Reserve Bank of India Cut forecast to 6.8%attributed it to weakness in areas such as Nifty earnings forecasts and goods and services tax collections.
What happened to the market?
Indian stocks are struggling to maintain momentum. this nifty 50 The index was basically flat this week. The index has gained 11.4% this year.
Likewise, benchmark 10-year Indian government bond yields have also been subdued this week, trading around 3 or 4 basis points at 6.83%.
Embassy REITs CEO Aravind Maiya observed on CNBC this week that more companies Establish a global competency center in India. Maiya said that 23% of the Fortune 500 companies have GCCs in India and this proportion is expected to increase to 43% in the next 5 to 6 years. Crucially, these centers are now so-called “transformation centers” doing front-line work, rather than the support centers they once were.
Meanwhile, Michael Landsberg, chief investment officer at Landsberg Bennett Private Wealth Management, said investors should diversify their portfolios outside the U.S. for growth. Specifically, Landsberg likes Indiabecause the country is growing two to three times faster than the United States
What happens next week?
Important economic data worth watching are the US personal consumption expenditures price index and US non-farm employment data. Indian construction company Afcons Infrastructure listed on Monday.
November 1: U.S. non-agricultural employment data for October, China’s Caixin manufacturing PMI for October
November 4: Afcons Infrastructure IPO
November 5: US October ISM PMI, India October HSBC PMI final value
November 7: China’s trade balance in October
