Emkay Global Financial Services’ report on Petronet LNG
“The recent correction in spot LNG prices to almost $7/mmbtu has raised concerns over pricing of PLNG's 7.5mmtpa long-term contract, which is close to ~$14/mmbtu. JCC linked pricing formula implies lesser sensitivity to a fall in Brent prices as formula captures the 60 months average crude oil price for fixing the cap/floor price. As a result, we can see the impact of the current fall in spot LNG prices reflect in the long term prices from mid-FY17E only. Moreover, as ~30% term, or 8mmscmd volumes are not contracted by off-takers, it could raise PLNG's inventories and restrict its ability to process lucrative spot cargoes.”
“The government's thrust on increasing power supply from gas based power plants using imported LNG is likely to boost LNG off-take. In order to make LNG lucrative, the government has cut all levies and taxes on imported LNG. We expect this move to aid off-take from PNLG's Kochi plant, as AP has 5,500MW gas based power plant , which itself consumes 5-6 mmscmd of LNG.”
“While we expect pressure on PNLG's operations for the next 4- 6 quarters, the long term growth prospects are encouraging. 1) Benefits of lower LNG prices reflecting in Ras Gas Qatar's formula from FY17E, 2) Tying up 14.74mntpa out of total15 mntpa capacity in long term contracts with off-takers and 3) Possibility of LNG prices remaining low due to new capacity addition from Australia, the US, Mozambique & Tanzania - promise healthy growth, post FY17E. We believe PLNG's stock prices have already factored in the near term concerns. Thus we have changed our recommendation from Hold to Buy with a Target price of 227”, says Emkay Global Financial Services’ research report.
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