 "Revenue-share mode for energy exploration")
Petronet LNG's deal with RasGas would not only bring down the overall cost of gas for India, but will also benefit gas utility companies including Gail India, Indraprastha Gas Limited (IGL) and Gujarat State Petronet Limited (GSP).
"The deal would improve the overall utilisation of Dahej terminal, which was facing some issue in last three quarters due to higher long term LNG contract," IDBI capital said in a note. For Gail India, the risk of facing 'take or pay' liability of $1 billion is now gone and its petrochemical business would get a big boost.
"Gail's petchem business was utilising at lower rate of nearly 50-60 per cent due to higher input cost. With lower gas price, they can improve the utilisation and also it would again start making profit," said IDBI Capital.
While Petronet LNG's scrip was at Rs 259 a share on the BSE, up 1.63 per cent from the previous close; Gail was down 1.49 per cent at Rs 369.80 and Indraprastha Gas Limited was trading nearly flat at Rs 526.85.
Petronet LNG is India’s largest liquefied natural gas (LNG) importer. The company on Thursday announced it would get fuel from Qatar’s state-owned gas producer RasGas at nearly half the price originally agreed upon.
Both the companies on Thursday signed a revised sale purchase agreement, according to which Petronet will get LNG at $6-7 per million British thermal unit (mBtu). The deal will help Indian LNG consumers save Rs 4,000 crore annually.
Long-term LNG constitutes almost 24 per cent of the total gas consumption in India including domestic gas and 54 per cent of the total LNG import. Under the original contract signed between the two companies in 1999, Petronet would get LNG at $12-13 per mBtu. The new contract is effective from January 1, 2016 and ends in 2028.
Under the new contract, the price for the buyer will be governed by market dynamics based on a crude price linked formula against the earlier contract, where RasGas did not allow any change in pricing.
Analysts estimate the change in the pricing formula from five years average crude oil price to three months average would translate into a 24 per cent jump in GAIL’s earnings in the next financial year. “The development will also benefit Petronet LNG and is a positive for CGD (city gas distribution) and transmission companies such as GSPL, IGL and GujGas as it could mean volume pick-up and margin expansion in industrial volumes,” said Dhananjay Sinha, head of research at equity research firm Emkay Global.
The new contract is for a capacity of 8.5 million tonnes per annum (mtpa) against 7.5 mtpa in the earlier contract. This would, then, be sold to Indian Oil, BPCL, GAIL (India) and Gujarat State Petroleum Corporation. Petronet has already signed GSPA (gas sales purchase agreement) with these companies.
In addition, RasGas also agreed to waive the ‘take or pay’ penalty of nearly Rs 12,000 crore on Petronet for a lower off-take during 2015.
During 2015, Petronet’s off-take was only 68 per cent of the contracted 7.5 mtpa capacity.
During the remaining term of the contract, Petronet will buy the volumes not taken in 2015.
