GAIL seen gaining from spot LNG surge, CGDs insulated

By: |
May 13, 2021 4:45 AM

As FE reported earlier, experts pointed that the price surge may reduce natural gas imports as price-sensitive consumers in the power and fertiliser sectors are likely to refrain from using the commodity and switch to alternate fuels and feedstocks.

Asian spot LNG price is up 72% from low of $5.6/ million British thermal unit (mBtu) in early March to the current level of $9.65/mbtu as severe winter depleted gas inventories in North Asia and Europe leading to competition for LNG supplies.Asian spot LNG price is up 72% from low of $5.6/ million British thermal unit (mBtu) in early March to the current level of $9.65/mbtu as severe winter depleted gas inventories in North Asia and Europe leading to competition for LNG supplies.

The current surge in the prices of Asian spot liquefied natural gas (LNG) seen to improve marketing margins for GAIL, while other gas utilities such as Gujarat Gas (GGL), Mahanagar Gas (MGL) and Indraprastha Gas (IGL) can offset the impact of rising prices owing to their lower exposure to spot markets and increase in supply prices.

Asian spot LNG price is up 72% from low of $5.6/ million British thermal unit (mBtu) in early March to the current level of $9.65/mbtu as severe winter depleted gas inventories in North Asia and Europe leading to competition for LNG supplies.

From the lows of $2/mBtu recorded in May 2020, spot LNG prices increased to $10.7/mBtu on an average in December, spiraling to $18.5/mBtu in January as severe winter in Northeast Asia raised demand.

As FE reported earlier, experts pointed that the price surge may reduce natural gas imports as price-sensitive consumers in the power and fertiliser sectors are likely to refrain from using the commodity and switch to alternate fuels and feedstocks.

Analysts at ICICI Securities pointed that steeper rise in spot LNG prices compared with the price of gas imported from US (Henry Hub) has meant GAIL can sell its US LNG at higher rates. GAIL usually sells about 10-12% of its US LNG cargoes at spot LNG price in the second half of every financial year. The agency estimates GAIL’s FY22 gas marketing earnings before interest, taxes, depreciation and amortisation at `4,940 crore if ten cargoes are assumed to be sold at spot LNG prices.

Utilities such as MGL and IGL will likely remain largely unaffected by the price surge as spot LNG constitute only 3-12% of their overall gas sourcing. Though spot LNG constitutes about 60% of industrial gas sourcing for GGL, analysts at Jefferies remain comfortable on its margins stating that the 15-35% price hike taken in December-January “appears to factor in a similar spot LNG price”.

The country imports about 50% of its gas requirement, and the procurement is distributed between long term and spot market contracts, depending on the price signals. LNG imports fell 3.1% annually to 32,855 million metric standard cubic metre in FY21 while the value of LNG imports dropped 22% annually to $7.4 billion, as spot rates averaged only $2.6/mbtu in the first half of the fiscal.

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