Confidence Petroleum India Ltd Management Discussions.

Industry structure and developments

LPG Industry

Liquefied Petroleum Gas fuel or LPG is a group of flammable hydrocarbon gases that are liquefied through pressurization and commonly used as fuel. It is a natural element derived out of combination with other hydrocarbon fuels, typically crude oil and natural gas. It is produced during natural gas processing and oil refining and liquefied through pressurization and stored in pressure vessels. While over 90% of demand for LPG comes from residential consumers, a consistent hike in the excise duty for automotive fuels such as diesel and petrol has made commercial

LPG a favourable option for automotive segment as well. Further petrol and diesel are still under excise and benefit of GST is not available.

LPG as a cooking fuel for residential segment

The Governments initiatives to provide clean fuel to every household has made India as the second largest consumer of LPG fuel globally. On an average, India consumes 19 million tonnes per annum with an average growthof 8.4% per annum. (Source: Business Today)

The LPG demand reported a record growth in 2018-19, at 24.9 million tonnes. It has grown over 53% in the last five years and 7% over 2017-18. Indias LPG imports have shown remarkable trends over the last five years. In 2018-19 LPG imports stood at 13.2 million, highest till date, which is twice the import volumes in 2013-14 and 16% higher compared to last year. The phenomenal consumption growth has also been largely supported by various Government schemes likePahal,Ujjwala,DirectBenefitTransfer and ‘Give it Up. The LPG penetration in the rural areas have been very robust under these schemes. Under the programme, 90% of Indian households have access to LPG, up from 55% in 2016. (Source: Economic Times)

Outlook

LPG demand from the residential segment is expected to show strong growth momentum in the coming years owing to favourable Government policies. Besides, an additional 5 million tonnes of import terminal capacity is expected to be operational by FY2020-21 to further cater to the increasing consumption. (Source: Livemint) Under the PMUY scheme the Government is targeting to provide 8 Crores LPG connections by FY2020. As per Oil Ministrys projections, LPG consumption is expected to grow to 30.3 million tonnes by 2025 and 40.6 million tonnes by 2040. (Source: Economic Times)

Threats

The major threat to the industry will be in the form of City Gas Distribution network and Electric Vehicles (EV). But we dont foresee any major threat in coming 5-7 years as huge investment in infrastructure is required for both city distribution and EV. Lots of challenges and doubts are there for the success of PNG, CNG and EV looking to the paying capacity and geographical bottle necks.

Opportunity

LPG prices are coming down sharply in global markets. As a result, LPG is becoming most viable and feasible fuel in comparison to other fuels like CNG. The two major component of LPG Propane and Butane prices came down to 350-360 USD/PER MT from 550-600USD/PER MT in last eight months months as USA is now net exporter due to huge production capacity through shell gas.

LPG as a clean fuel for automotive segment

LPG is the third most commonly used automotive fuel following petrol and diesel. It fuels more than 26 million vehicles across 70 countries. Its economic viability and environmental friendliness has paved way for the clean fuel in India as well. The use of auto LPG in automotive in India commenced from the year 2000. Today, there are 1,100 Auto LPG Dispensing Stations (ALDS) set up pan India.

The State Government, of Karnataka, Maharashtra, Tamil Nadu, Andhra Pradesh, Telangana, Rajasthan and West Bengal have made LPG mandatory for auto rickshaws leading to a higher demand of LPG (Source: Indian Auto LPG Coalition).

Outlook

As per the WHO report, top 14 most polluted cities are in India. This has resulted in a push to clean and sustainable fuel options. AUTO LPG can play a significant role in transforming the mobility in India. Low cost of infrastructure and conversion, sustainability, along with easy availability makes LPG a fuel of choice. LPG has an impeccable safety record and eco-friendliness which speaks for its strength. Indias auto LPG has witnessed a steady growth over the past few years. With increasing awareness on environment conservation, high volatility in petrol and diesel prices and higher number of hybrid vehicles will create a huge demand for auto LPG in the years to come. The Indian Auto LPG Coalition (IAC) has been demanding favourable policy initiatives from the Government to allow auto LPG to become a major alternative to petrol and diesel. As Indian cities struggle to fight the growing air pollution levels, petrol and diesel are increasingly becoming non-sustainable. The auto LPG sector in the past few years has witnessed a steady growth in India, as more and more people opt for hybrid vehicles and gaseous fuels.