The natural gas industry's growth prospects are brightening in the coming year, because to strong demand and favourable project cost economics, according to rating agency ICRA.

Domestic gas consumption, which had slowed slightly in 2020-21 as a result of the Covid-19 pandemic, is now predicted to rise by 9-11 percent this fiscal year.

Demand resurgence following the lifting of lockdown restrictions, increased offtake by City Gas Distribution (CGD) organisations, pipeline development, new LNG terminals, and the launch of new fertiliser plants will all contribute to this growth.

"Further, despite the increase in gas prices, the cost economics remain favourable for CNG and PNG (domestic) compared to alternate fuels, although the competitive intensity is higher in case of industrial fuels," ICRA said in a statement.

Despite large debt-financed capex expected over the next few years, the credit profile of incumbents in the sector is expected to remain healthy, supported by regulatory protection or the dominant competitive position of most of the entities in this sector, in addition to healthy margins, liquidity, and strong financial flexibility, according to the report.

In addition, the upstream oil and gas business has benefited from rising demand and multi-year highs in crude oil prices in the current fiscal year, resulting in good profitability and cash flow generation for enterprises.

Oil prices are projected to remain high in the medium term due to rising demand and OPEC+'s graded increases in production and supply, which will sustain upstream oil and gas businesses' profits and profitability.

"The domestic gas prices have also witnessed an increase and it is expected that the domestic gas prices will go up further in the next round of revision, which would also support the profitability of the oil and gas companies," the agency said.

On the refining and marketing side of the company, demand for petroleum products is on the rise again after dipping in March-April 2021 owing to the second wave of the Covid-19 pandemic, and is predicted to increase by 8-10% in 2021-22.

Refiners' core gross refinery margins were low in the first few months of 2021-22, but they have risen dramatically as demand has increased due to constrained supply and the permanent shutdown of refining capacity in high-cost areas.