HSBC (LON:HSBA) has projected a positive outlook for India's oil and gas industry in 2024, anticipating growth driven by increased production and refinery capacity. This comes as Indian oil marketing companies (OMCs) brace for margin challenges due to new capacities, yet they might gain an edge over China, which is currently facing capacity delays. Furthermore, a pivot towards petrochemicals is expected in the wake of stable post-election fuel prices and a decline in diesel demand.
On Monday, HSBC maintained 'buy' ratings for several key players in the Indian oil and gas market, including GAIL, Petronet LNG, HPCL, BPCL, and IOCL, while assigning a 'hold' rating to ONGC. ONGC, which is on the cusp of peak oil output, could face production declines unless new discoveries are made. Nonetheless, the company is investing significantly in the OPAL project and exploring oil-to-chemical ventures, buoyed by access to areas that were previously restricted for exploration.
The Russian crude premium is also expected to improve margins for Indian OMCs by $1.5-3 per barrel. This is particularly significant as the industry shifts focus towards petrochemicals and away from diesel, in response to the anticipated stability in fuel prices after the elections.
The natural gas sector is set to witness a surge in demand, positioning companies like GAIL and Petronet LNG for growth. Natural gas is seen as a transitional bridge fuel before the widespread adoption of electric vehicles and green hydrogen solutions. Lower LNG prices have already boosted demand for city gas. Additionally, the emergence of new domestic gas sources from RIL and ONGC, along with the development of terminals at Dhamra and Dabhol, are set to improve supply prospects. The implementation of unified pipeline tariffs is expected to further expand customer access, signaling a robust period for the industry in the near future.
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