Gujarat Energy Sees 90% Drop in Morbi PNG Sales as Manufacturers Shift Back to Propane

Gujarat Energy’s natural gas volumes to India’s biggest ceramic cluster in Morbi have declined by nearly 90 per cent over the past five months. According to company disclosures, sales dropped to around 1 million standard cubic metres per day (mmscmd) from a peak of 8.5 mmscmd during supply disruptions triggered by the Iran war.

A senior Gujarat Energy official told investors that volumes stood at close to 2.5 mmscmd before the war in February, briefly surged during the disruption, and have now fallen to 1 mmscmd. This sharp contraction underscores the challenges city gas distributors face in maintaining industrial clients when fuel economics favor alternatives like propane.

Morbi volumes had averaged 5.67 mmscmd in the first quarter of FY27 before moderating to approximately 3 mmscmd in the second quarter. Supplies rose from roughly 0.4 mmscmd in April to 8–8.5 mmscmd in May and June as manufacturers turned to natural gas amid propane shortages.

However, propane supplies have gradually recovered since July, with manufacturers sourcing the fuel from countries including the US and Venezuela. Gujarat Energy management noted that against its current gas supplies of 1 mmscmd, propane consumption in the cluster is equivalent to about 5.3–5.4 mmscmd of gas. Major manufacturers, such as Varmora Granito, have shifted a significant portion of their operations back to propane. Varmora Granito’s chairman and managing director had previously stated that around 80 per cent of its plants were operating on propane due to affordable pricing, while maintaining flexibility to switch between fuels.

To address this competitive disadvantage, Gujarat Energy is focusing on strengthening its long-term liquefied natural gas (LNG) sourcing portfolio. Management stated during a recent earnings call that the company is building a competitive LNG book to counter the propane challenge. The firm is targeting an LNG sourcing portfolio of around 4 million tonnes per annum (MTPA), which includes two recently signed contracts totaling 0.8 MTPA, aimed at offering stable, long-term prices to regain lost industrial customers in Morbi.

The company is also evaluating propane infrastructure development, including a potential import terminal in Gujarat, though competitively priced LNG remains its preferred approach. Management noted that the current price differential between natural gas and propane stands at around ₹7–8 per standard cubic meter, down from nearly ₹12 in September. This pricing pressure coincides with a broader contraction in Morbi’s ceramic industry, where higher freight costs and operational pressures continue to weigh on overall market demand.

Meanwhile, Gujarat Energy is pursuing industrial gas demand diversification beyond Morbi. The company is targeting markets such as Rajkot, Surendranagar, Surat, Bharuch, Ankleshwar, Valsad, and Dadra and Nagar Haveli. Its industrial PNG volumes reached approximately 6 mmscmd in the second quarter of FY27, with the quarter-on-quarter moderation primarily driven by lower demand from the Morbi cluster.

"This situation highlights a fundamental operational risk in energy and industrial supply chains: heavy reliance on a single customer concentration and volatile fuel economics. When alternative fuel availability normalizes, industrial consumers will naturally migrate toward cost efficiency. For energy distributors and similar industrial suppliers, long-term resilience requires diversified regional demand and flexible, competitive sourcing strategies to protect margins against sudden market shifts." — Dr. Shishir Gupta, Founder & CEO, StartupLanes