Petronet LNG feels the heat of lower gas prices

Petronet LNG feels the heat of lower gas prices

New Delhi: Indian public sector gas importer Petronet LNG is feeling the heat of prevalent lower gas prices, leading to fewer customers for the higher-priced imported liquefied natural gas (LNG).

This has dented Petronet’s volumes as capacity utilisation in the January to March 2015 quarter fell to its lowest level in five years, although some analysts say the 74% utilisation at the flagship Dahej facility has bottomed out, and should see improvement from this point onwards.

The lower utilisation at Dahej was primarily due to deferral of long-term RasGas cargoes from Qatar. Lower spot volumes were due to reduced flexibility as a result of storage capacity constraints. Reduced long-term LNG demand led to increased inventory levels, which in turn led to reduced flexibility to import cheaper spot cargoes.

The Dahej terminal, however, remains on track to bring on stream its enlarged capacity, from 10m tonnes per annum (tpa) to 15m tpa, by mid-November this year. But the benefits of this capacity enhancement will only be seen in the long term; not immediately.

The price gap of $4-5 per million British thermal units (mbtu) between long term and spot cargoes appears unlikely to narrow in fiscal 2016-17, causing lower offtake from end-users. Gross revenues may increase, but earnings before interest, tax, depreciation, and amortization (EBITDA) are bound to decline.

Analysts from Nomura have said that benefits will accrue due to increased offtake of LNG by the power sector. The fact that companies may have to forego margins for supplies to power plants has taken away some sheen from the benefits that may accrue due to increased volumes.

Shirish Nadkarni

Shirish Nadkarni is a management consultant and freelance international journalist, who has been writing on all spheres of Indian business for the past three decades for a number of reputed overseas publications. An avid sportsman, Nadkarni has represented India in international veterans' badminton since 1997, and was the 55+ age group doubles world champion in 2005.

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