Power Today |
Advertise Here [728 W x 90 H pixels]
Report | May 2013

Indian companies secure gas supply

Petronet's latest contract also takes total long-term LNG contracted by Indian buyers to more than 30mtpa by 2017-18. While import re-gas capacity would also have risen to over 50mt by then, which may help to de-risk these planned import project, Sadiya Khan makes an assessment.

In a move that was most sought, Indian oil & gas companies have started seeking additional gas supply to fulfill domestic demand in the back drop of falling domestic gas production. Most recently, of the country's biggest liquefied natural gas (LNG) importer Petronet LNG has entered into an agreement with Houston-based United LNG to ensure import 4 million tonnes of gas a year for 20 years. The development has taken place at a time when Indian companies including Reliance Industries and Oil & Natural Gas Corp. are struggling to raise production at home, affecting supplies to power and fertilizer companies.

Petronet expects its fist shipment by 2018, according to R K Garg, Director (Finance), Petronet. The gas would be imported from Main Pass Energy Hub in the Gulf of Mexico. However, the deal needs approval of the US Department of Energy (DoE) to export gas as the US does not have a free trade agreement (FTA) with India. Even though, Petronet did not comment on the expected gas price to be sourced from the project, the industry watchers are expecting the price to be similar to GAIL's agreement with Cheniere. Under the agreement, GAIL will pay for gas on a Henry Hub, which decides futures gas price decided by the US exchanges. However, the landed price in India will be higher.

Demands for gas in India is rising and the government is looking for ensuring the gas supply for domestic use as large volumes are available in the US and other countries at competitive prices. Petronet has joined GAIL India Ltd (GAIL), the country's biggest gas distributor, for securing supplies from the US. Natural gas prices in New York trading have increased 25 percent this year following a 12 per cent gain last year. Freeport McMoRan Energy LLC and United LNG are jointly developing the Main Pass export terminal with a capacity of 24 million tons per year, according to United LNG's website. The project will start exports in 2017, according to the website.

Long-term LNG agreement

With this new agreement, Petronet LNG has secured import 15mtpa of LNG, while Gail has agreements totaling more than 8 mtpa at this time. According to a recent report launched by Barclays Research, Petronet is looking to raise this to 20mtpa by 2020. GSPC and IOCL also have long term LNG import contracts Several others like Reliance, Petronet LNG. Gail and GSPC also have short and mediumterm contracts. The US makes up nearly a third of the import agreements at this time.

The report states that Petronet's 4mtpa long-term LNG import agreement adds to a slew of such agreements signed by Indian buyers that now total more than 30mt - higher than current domestic gas output. This bodes well for utilisation of LNG import terminals and gas transmission networks in the long run, helping Petronet and Gail, in our view. The rising proportion of LNG in the supply mix continues to prime the market for higher gas prices too, with tailwinds for producers like ONGC, Oil India and Reliance. BPCL, Oil India and Cairn are our top picks. While we like Petronet's long-term prospects too, we retain EW on near-term headwinds.

More than 30mt long term agreement

Petronet's latest contract also takes total long-term LNG contracted by Indian buyers to more than 30mtpa by 2017/18. While import re-gas capacity would also have risen to over 50mt by then, which may help to de-risk these planned import projects. Besides Petronet, this also bodes well for Gail, which will benefit from rising gas transmission volumes. Gail has also been active in securing its own LNG contracts, 8.3mt so far, which will likely augment trading margins and help utilization at its Dabhol LNG terminal.

New contract

Petronet has signed a preliminary agreement with United LNG to import 4mtpa of LNG from United's Main-Pass project in the US Gulf of Mexico. While full terms are not known, pricing is likely to be linked to US Henry Hub, exports may commence in 2017- 18, and may require approval from the US government given India's ônon FTAö status.


A recent DOE report makes such approvals more likely; a firm agreement would take Petronet's long term contracts to 12.9mt across Qatar (7.5mt), US (4mt) and Australia (1.4mt). Together with possible imports from Gazprom (2.5mt) and the take-orpay contracts with Gail (2.5mt) and GSPC (2.25mt), Petronet would have de-risked 50- 73per cent of its 27.5mt capacity by 2017/18 across Dahej, Kochi and Gangavaram.


This bodes well for Petronet in the long run as we had argued in our detailed 3 Jan report Near term headwinds with import volumes doubling over FY13-17E. Nonetheless, we retain our EW rating given near-term headwinds from likely FY14 EPS downgrades and continuing uncertainty on the Kochi terminal.

Gas prices

Indeed, these contracts now exceed current domestic gas output. Domestic output will rebound but together with short and medium-term contracts, Barclays Research report estimates that the share of LNG in overall supplies may still rise from 30per cent now to more than 40 per cent by FY17 and over 50per cent in 2020. With landed LNG costs at 3 to 4 times of that of domestic prices, the Indian market continues to be primed for higher prices helping domestic gas producers.

Post your comment
Verification Code:   Change Image


Posted Comment
1 .     Yogesh Says:
17 Oct 2016
I wish to start pvc / pp electric wire unit in Delhi. What kind of information I can get if I subscribe for your magazine

2 .     Sarfaraj Bilakhiya Says:
20 Sep 2016
Pls invite me all auction in gujarat

3 .     k.natarajan Says:
20 Jun 2016
we are doing business developing for solar power ,thermal power , customer supporting and we have 45 mw splar power on hand needs investors..... thanks lot pls call +910842559230 +919842753550

Advertise Here [728 W x 90 H pixels]