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Home / Markets / Mark To Market /  For Petronet LNG, capacity utilization is key

Shares of Petronet LNG Ltd have underperformed the broader market this year, declining by around 11% so far in 2021. In comparison, the Nifty 500 index has gained nearly 30% in the same period. Not without reason. Investor sentiments have remained subdued with capacity utilization getting impacted due to covid-led disruptions. Rising spot LNG (liquified natural gas) prices further added to the company’s woes.

Capacity utilization at Petronet LNG’s key terminal at Dahej in Gujarat was impacted during the March and June quarters, though it rebounded in the September quarter. Having said that, weak LNG import data during November is a concern, which in turn could have a bearing on the company’s December quarter performance.

 

Volatility persists
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Volatility persists (Mint)

India’s LNG imports in November stood at 1.52 million tonnes, a 34% decline from the year earlier, and 28% sequentially. It was the lowest level of imports since 2017, Credit Suisse said in a report on 5 December. Capacity utilization at Petronet LNG’s Dahej terminal thereby plunged to 66% in November from 95% in October, said the brokerage. Since the Dahej terminal has a bulk of its capacities tied up under long-term and short-term take-or-pay contracts, such a sharp fall is surprising.

According to analysts, given India’s robust demand for gas, the decline in imports may be due to higher imported LNG prices. Needless to say, investors will watch for signs of recovery in December.

Meanwhile, lower gas utilization in November would keep concerns elevated and could also mean that December quarter capacity utilization may also potentially suffer. It may be recalled that the September quarter saw Dahej terminal capacity utilization jump to 98%, from 85% and 91% in the previous two quarters, respectively.

Meanwhile, Petronet’s Kochi terminal remains underutilized, thanks to the delay in completing the Kochi to Bengaluru gas pipeline. Hopes are high that the pipeline’s completion over the next two years could help lift the terminal’s utilization.

Petronet LNG is expanding its Dahej terminal capacity to 22.5 mmtpa (million tonnes per annum) in two phases from the current 17.5 mmtpa. This is a positive for its growth prospects. However, analysts at Elara Securities India Pvt. Ltd said, “Given LNG supply tightness and new terminals coming up on the west coast, we believe Petronet LNG will find it difficult to run expanded capacity at full utilization."

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