Domestic shortage of gas to benefit Petronet LNG

Domestic shortage of gas to benefit Petronet LNG

One man’s loss is another man’s gain. Even as Reliance Industries Ltd is struggling to improve production from its Krishna-Godavari D6 fields thanks to reservoir complexities, it is Petronet LNG Ltd that is going to reap the benefits from the resultant shortage of gas in the country in the interim.

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It’s true that India’s domestic gas supply is likely to increase in the next four-five years, as new gas discoveries have improved the gas supply outlook. But analysts still expect there would be a deficiency in gas supply.

According to a note by Motilal Oswal Securities Ltd, global LNG (liquefied natural gas) prices are expected to be soft, as the emergence of shale gas in the US has rendered large LNG investments underutilized.

“India’s gas deficit and LNG availability at reasonable prices will help Petronet to post volumes of 12% CAGR (compounded annual growth rate) to 12.5 mtpa (50 mscmd) by FY14," Motilal Oswal analysts wrote last week.

Petronet is engaged in importing, storing and regasifying LNG and derives its revenues by charging regasification margins on the imported LNG.

Analysts expect Petronet’s regasification tariff to increase by 5% each year in FY11-13 and remain flat thereafter.

Last month, Petronet’s board gave in-principle sanction to expand the capacity of its Kochi terminal from 2.5 mt to 5 mt. This would be at an incremental cost of Rs450 crore, increasing the project cost to about Rs4,100 crore.

The Kochi terminal is expected to be commissioned by March 2012 quarter. Petronet has already tied up 1.5 mt LNG supply from the Gorgon project in Australia.

Petronet’s stock has outperformed since the beginning of the current fiscal and increased by 47% to Rs116 per share compared with the 9% increase in the BSE-200 index on the Bombay Stock Exchange.

There are some analysts who maintain that valuations are high at the current level. The firm had, nevertheless, delivered better- than-expected financial results for the quarter ending 30 September on the back of higher volumes, lower other expenditure and high other income.

Graphic by Yogesh Kumar/Mint

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