We expect gas prices to rise 9% from April

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Published: March 24, 2018 3:46:55 AM

India's LNG imports fell 12.5% m/m after a strong Jan but we expect operating rates at PLNG to be more resilient like we do when India's LNG macro turns even softer.

LNG imports, india, PLNG, domestic gas production, Reliance, ONGC, ONGC productionProduction may rise at ONGC too even if it misses its own target that calls for a ~90% rise in FY17-22E to 115mmscmd. (Reuters)

India’s LNG imports fell 12.5% m/m after a strong Jan but we expect operating rates at PLNG to be more resilient like we do when India’s LNG macro turns even softer. New terminals will start-up and domestic gas production will rise. For now, though, the latter remains sluggish, including at ONGC, although realisations are more crucial. Here, we expect its gas prices to rise 9% from April noting that 8.2x FY19 P/E leaves risk reward favorable even if subsidies are uncertain. India’s gas production rose 2% m/m in February but aggregate momentum remains uninspiring trending 1.5% y/y lower like it did in the soft January. ONGC’s production rose as did output at RJ onshore, Reliance CBM and PM with KG-D6 output falling again. Indeed, Reliance shut yet another well in KG-D6 on low reservoir pressure with D1/D3 & MA now likely in terminal decline. We see little respite, therefore, before the new $6 bn KG-D6 developments lift output by 35mmscmd when they start-up from 2021.

Production may rise at ONGC too even if it misses its own target that calls for a ~90% rise in FY17-22E to 115mmscmd. Our bottom-up forecasts that build in 6m project delays, a 6m ramp-up and 7% base decline still suggests a 21% rise to 78mmscmd by FY21E. For now, though, it is still struggling at ~65mmscmd (like it has for 15 years) citing delays at WO-16, B-127 and S1/V. Nonetheless, all three wells at the S1/V project are now hooked up with onshore terminal commissioning in progress boding well for the NT.

Indeed, the deep-water 5.5mmscmd S1/V project qualifies for higher prices too where the $6.3 GCV ceiling is more than double the $2.9 it realizes at other fields. These are both likely to be revised up from April too after the six monthly reset with our models building a $0.2/mmbtu or 9% rise for the latter to $3.1 GCV helping EPS by 2%.

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