Petronet LNG in a spot over higher prices

Petronet LNG in a spot over higher prices

India is a gas-deficient country. And with uncertainties looming large over the ramp-up of gas from Reliance Industries Ltd, the outlook on the overall availability of gas in the country isn’t all that rosy.

Normally in such a scenario, Petronet LNG Ltd tends to benefit, as demand for imported liquefied natural gas (LNG) rises. But in the recent past, analysts are becoming a bit unsure of whether Petronet would be able to reap the benefits of the situation, given the higher spot LNG prices.

Global LNG demand is expected to improve because of the natural calamity in Japan. That’s because to make up for the lost generation capacity at the Fukushima nuclear plant, Japan is likely to resort to using LNG to improve power generation at its gas-based power plants. As a result, spot LNG prices could increase.

The moot question now seems to be whether there will be buyers at higher prices in India. Petronet can sell up to 10.5 million tonnes per annum (mtpa) of capacity, of which long-term volumes are to the tune of 7.5 mtpa from RasGas Co. Ltd. Further, the company has also announced a short-term contract of 1.1 mtpa for FY12 and FY13.

According to Gundeep Singh of Kotak Institutional Equities, “A significant chunk of Petronet’s incremental volumes (excluding the long-term contract from RasGas) could be spot LNG contracts for the company, which would be linked to global crude oil prices. Even the recent contract of 1.1 mmtpa would track crude oil prices."

Petronet LNG’s stock has appreciated by 53% since the beginning of this fiscal to Rs121 apiece against the 7% increase in the benchmark Sensex of the Bombay Stock Exchange. That increase, along with the above mentioned concerns, are likely to cap upsides in the near term for the stock.