Stars In A Bright Sky
This blog is about the Indian Gas Sector and its entire value chain. We have tried to cover the understanding of each part of the value chain and which part of this chain looks investible.
Disclaimer: This blog is not a recommendation to buy / hold / sell any stock. This blog is mainly for information and educational purpose only. The intention to share write ups on this blog is to create a repository of ideas so that investors / visitors on the website / blog can have a look at various frameworks & approaches. Please read the detailed disclaimer at the bottom of the post.
Glossary:
You may refer to this table, to understand the conversions / units used in this sector.
Energy Sources:
Natural Gas (NG) is one of the sources of carbon i.e. energy. NG is mainly methane, with smaller amounts of propane, butane and ethane. Below you can see how sources of primary energy consumption have evolved over the last 20 years. In the last decade, NG has grown the most.
Coal, Crude and NG form majority of the sources of energy consumption. They are also one of the main sources of carbon emissions. Share of NG in India's energy basket is 6.2% as against 23.4% globally. India is aiming to increase the share to 15% by 2030.
Comparing the 3:
NG is the least emitter of carbon, hence relatively much more eco-friendly compared to the other two. Preference towards NG has grown tremendously over the last decade and a lot of switching is happening from oil and coal into NG.
Long Term Chart:
Coal is the cheapest source of energy out of the 3.
India Energy:
India imports 47% of total energy and 83%
of oil requirements.
Gas presently at ~6% is targeted to be ~15% by 2030, which will provide huge opportunities in the entire value chain. Coal, in RoW, has relatively lesser share.
Now with this small background, let us look at the Indian Gas Sector.
Snapshot of India's Gas Sector:
Supply Side:
- Domestic Gas E&P
- Import of LNG and Re-gasification
Infrastructure:
- Transmission & Marketing through pipelines
Demand Side:
- Fertilizers
- Power
- City Gas Distributors (CGDs)
- Refineries, Petrochemicals & Others
India Gas Map:
India is in the process of making a National Gas Grid; with which 100% of India will have an access to NG. After the 10th round, the coverage is 70% of India's population (and 50% by geographical area). As you can see above, the development of NG is more towards the western and northern part of India.
In the latter part of this blog, we will see how the pipeline infrastructure in India looks like.
Historical demand - supply details for last 13 years:
We will divide our blog into 6 sections as below:
1. Pricing & Allocation
2. Demand Drivers
3. Supply Drivers
4. Transmission & Marketing
5. PSU presence
6. Gas Trading Exchange
1. Pricing & Allocation:
There are basically 2 types of domestic gas i.e. APM (Administered Price Mechanism) and Non-APM gas. Pricing of APM gas is referenced to 4 global indices, while non-APM gas is sold at discretionary market prices (may involve some deep water regulated pricing too), which is much above APM prices.
Since domestic demand always falls short of total demand in India, its allocation needs to be done based on the priority. As per the latest policy change in 2014, below is the new allocation priorities:
Post 2014 change, City Gas Distributors (CGD) companies to benefit the most, since CNG & D-PNG has become the top priority in allocating APM Gas. Further all the actual demand + 10% growth will be met through APM allocations for these CGDs.
APM Pricing:
- Weighted average of volumes and prices at various indexes as below:
•Henry Hub (US & Mexico) : ~40% weight
•National Balancing Point (Europe): ~ 33% weight
•Canada: ~ 7% weight
•Russia: ~ 20% weight
- APM is globally linked and derived prices. Neither regulated nor subsidized price
- APM prices are expected to remain soft because of softer Henry Hub and European prices
- APM is $2.39/mmbtu (GCV) presently; changing to ~$1.80/mmbtu from the next reset (Oct-2020 to Mar-2021). Reset happens every 6 months.
Henry Hub prices have perennially remained soft as compared to other indices, mainly because of softer (non-aggressive) pricing discipline observed by the players, and also NG being a by-product (not the main product) of crude oil and US always have focused more on crude. Since last few years, US has become the net exporters of LNG.
APM price chart:
APM pricing is presently soft and is expected to remain soft for another 1 year, which benefits the buyers as it is highly competitive as compared to other alternate fuel pricing.
Very recently, the Govt is thinking of putting a floor price for the APM pricing considering the way it is falling or may probably change the formula for calculating it (linking it to Japan Korea Index). The Japan Korea Index is presently quoting at $5/mmbtu and if the APM formula is changed (didn't get changed from Oct2020-Mar2021 reset; however may get changed in the next reset post Mar-2021), then the APM prices may start to quote higher. This will be sentimentally negative for the buyers of domestic NG. All this changes are being done for the economic interest of the domestic suppliers (whose cost of production is ~$3.5/mmbtu).
2. DEMAND DRIVERS:
- Fertilizer
- Power
- City Gas Distributors (CGDs)
- Petrochemicals
- Refinery
- Others
Now, lets look at all the demand driver individually.
2A. Fertilizer:
Major fertilizers include the following:
- Urea (~60%)
- Sulphur Phosphate
- Di-ammonium Phosphate
- Other complex fertilizers
Fertilizer sectors is the highest consumer (44 mmscmd) of NG with 29% share. Urea forms ~60% of total fertilizer production in India in FY19.
Share of fertilizers has started to revive in the last 3 years, mainly because of improvement in NG pipeline connectivity giving access to these fertilizer plants who can switch from naphtha to NG. Also new fertilizer plants are expected to come up which will be run on NG.
Following is the cost built up of urea:
Production cost of Urea is ~3.50x of its MRP.
In the above graph, you can see 7.50MT (24%) of urea is imported, and with grid connectivity, this import can be replaced, and there can be substantial savings in forex outgo too.
From the above graph, we can see that additional new demand of NG from fertilizer can be to the tune of 5MT i.e. ~18 mmscmd. The East-West pipeline infrastructure is providing more access and helping revive old plants.
- NG is used as feedstock for making urea (CO2 is added to ammonia to make urea)
- 1 tonne of urea requires ~0.5 tonne of NG
- FY19 urea production 24MT; NG used 12MT
- 24% of urea is imported
- Pricing of urea is regulated and subsidized
- NG is ~70% of urea cost sheet
- Procurement pricing of NG is based on Gas Pooling Mechanism (average of domestic and import quantity and their rates)
- NG is preferred over naphtha and fuel oil, as these are costlier, require more energy and yield lesser output.
Over the next 2-3 years, we can expect 18-20 mmscmd of additional demand for NG coming in from this sector. This demand will remain sticky. There is not much aggressive growth to be expected from the fertilizers sector beyond this.
2B. Power:
Some facts:
Bidding Rounds:
2nd largest consumer of NG (32 mmscmd) India has 25GW of gas based power plants. In 2011, PLF used to be ~65% which has dropped to present levels of ~23%. As you can see, post 2011 the domestic supply came down drastically, and the supply to power plants became more import dependent, leading to viability issues because of higher input cost.
However presently the LNG prices had dropped a lot, and PLF has started to pick up. It was quoting at around 29% in August 2020.
Though renewables (largely wind and then solar) has picked up in last 5 years, coal is still dominating in India. The share of NG has more or less been flat over the years.
- 1GW requires ~4mmscmd
- Presently gas based power is being used mainly for peaking demand
- Lower PLFs is because of shortage of domestic gas (cheaper source)
- RLNG prices below $4.5/mmbtu can pickup the stranded plants; with which the power costs will remain under Rs.3 per unit.
- Domestic supply is expected to pick up on back of KG 98/2, 98/3 and Daman field.
- At 50% PLF, additional demand of ~15mmscmd.
2011 (failure of Reliance KG-D6) problem was one of the key reasons for the stranded gas power plants. It is very onerous for utilities to sign a PPA for buying power from gas based players for a longer period because of highly volatile input cost (RNLG or domestic). The problem of stranded gas power plants can be solved if enough APM gas or any other gas (below $4-4.5/mmbtu) can be allowed to this sector without any disruption. But given the volatile nature of RLNG, structural demand from this sector looks unlikely and will remain patchy and only opportunistic. As mentioned earlier, priorities of domestic gas allocation towards gas power plants is low and there are other industries which command more priority.
2C. City Gas Distributors (CGDs):
3rd largest consumer after Fertilizer and Power with ~26mmscmd volumes. Let us begin with understanding some facts in CGDs:
- CGDs work under 2 main categories:
a. Compressed Natural Gas (CNG)
b. Piped Natural Gas (PNG)
- Domestic
- Industrial
- Commercial
- CNG & PNG business involves creating and maintaining the pipeline network to receive gas from a nearby trunk pipeline and pump gas through the network.
- Create last mile connecting pipelines linked to the network to supply PNG to B2C and B2B customers is an important piece in National Gas Grid mission.
- Priority and 100% availability in APM domestic gas allocation
- End user pricing is not regulated
- Considering the capex and volume of business, returns are lowest for D-PNG and highest for CNG
- CNG competes with Petrol & Diesel
- Domestic + Commercial PNG competes with LPG (subsidized)
- Industrial PNG competes with fuel oil, coal and other alternates
- PNGRB has no powers for setting prices. Only tariffs for networks.
- CGDs are a last mile connectivity in the entire value chain
Every participant wanting to develop any geographical area (GA), has to go through the process of bidding.
Since last 2 years (9th and 10th round), coverage under CGDs has increased multi-fold. Every GA, won by any participant, has a minimum works program (MWP) which is a schedule to complete designated work over 8 years. Most of the 9th and 10th round infrastructure may be ready over next 7 years, to reflect fully on the volumes.
Above is the allocation breakup from the last 2 rounds of bidding (9th and 10th round). Incumbents (MGL, IGL, GGL) have participated very less in the last 2 rounds due to aggressive bidding by the new players.
Following shows the CGD demand over the last decade:
Thrust from the Govt to wards expansion of gas network in India led to aggressive bidding of new GAs + priority allocation of APM gas has led to uptick in NG demand from this sector.
CGD Flow:
Above is a self explanatory picture. There will be NO shortage of supply of APM gas for CNG and D-PNG business because of the priority in gas allocation.
Below is the breakup of CGD business into the three verticals:
Comparison of 4 listed companies in CGD space:
There are 4 main players in the listed space:
- Mahanagar Gas Ltd. (MGL)
- Indraprastha Gas Ltd. (IGL)
- Gujarat Gas Ltd (GGL)
- Adani Gas Ltd. (AGL)
Most of the comparisons now onwards in the CGDs will be between these 4 names.
IGL and MGL are more focused towards CNG business; while GGL is focused toward industrial PNG. Adani Gas is a new entrant in CGD and has aggressively bid for new GAs.
CNG throughput per outlet:
Higher throughput means amount of business done at each station. MGL which is present in dense Mumbai geography has highest throughput followed by AGL. Margin profile increases as your throughput increases.
Operational Efficiency:
AGL is the most efficient among all the names. Opex will be different for different category of business (CNG, or PNG). Amongst IGL and MGL, MGL is seen to be more efficient.
Margins:
Margins depend on how effectively you are able to pass on the costs / benefits when movement in gas procurement prices increase / decrease. In last 2 years of soft APM pricing, MGL has been able to retain more benefit. AGL margins are higher on account of very cost effective opex and gas sourcing abilities.
CNG vs Petrol / Diesel:
This comparison is for CNG business in auto vehicles who presently have just the below 3 options (ignoring EV for now)
This is an example of prices in Mumbai. The choice for opting a CNG vehicle depends upon the payback of higher capital investment through discount (savings) in fuel prices. Usually payback period is between 2-3 years. Hence CNG prices will always be at a discount to petrol prices.
The discount on petrol prices have in the past gone to 30% which is when CNG starts to become less favorable option. But with current discount, CNG wins over petrol / diesel.
Just have a look at the present scenario, the prices of gas (cost for CGDs) is dipping since last 1.5 years and at the same time even crude has dipped ($40 vs $65 previously), but petrol / diesel prices have not corrected (crude drop benefit not passed on; taxes increased). Such instances are very good for CNG business. CNG just has to ensure they maintain those discount levels for people to opt for it.
PNG vs LPG:
Similar to the above discussion, this image is for PNG's (domestic + commercial) competitor i.e. LPG. As seen, even at subsidized LPG rates, PNG is a cheaper option.
PNG is safer than LPG and since it is lighter than air, it dissipates immediately in the air in case of leak. The
flow of PNG can be easily controlled by various safety checks / valves installed in the system. As PNG is supplied through a
pipe, it offers uninterrupted supply round-the-clock and is space economical as it does not occupy space which in the kitchen
which was initially reserves for storing cylinders.
Industrial PNG rates have to compete with alternate fuel options such as coal, naphtha, fuel oils, etc. However, PNG is the cleanest of all, and many industries are moving towards using cleaner fuel, either willingly (convenience and awareness) or unwillingly (ban on alternate fuels compelling only NG as a option).
Open Access Regulations:
Every CGD has a right to do monopoly business in a GA for initial 8 years, post which a third party competitor can "access" the existing network of this CGD to the extent of 20% of volumes. This means that CGD now has a third party coming in, and operating in the same GA giving it a competition. The incumbent will receive tariffs (rent) for letting the competitor use its network.
Following are some points to be noted on Open access regulations:
- Highest risks for earlier awarded GAs
- Tariffs must be @12% ROCE, lower than existing 30%+ ROCE for IGL / MGL
- No capex for the TP coming in
- Unclear on APM access to the TP hence competitive pricing for customers less likely
- Cherry pick on CNG business only (GA within a GA), is unclear
- OMCs best placed; ~50% of CNGs operate under OMCs infrastructure
PNGRB is expected to come out with these Open access regulations in the month of September 2020. There is a lot of uncertainty whether these guidelines will be good, bad or ugly for the incumbent CGDs.
Now let us discuss each company very briefly:
Mahanagar Gas Ltd.:
- Lowest % of owned CNG stations (compared to other players)
- Marketing exclusivity ended. Open access risk is the most; since no other new GAs
- CNG penetration is still low as compared to say Delhi. More volumes can come from existing GAs
- Favorable policy tailwind like Morbi / NGT swing can come in the following places which are in the Top50 list of NGT
- Navi Mumbai and Dombivali
- New additional volumes will be required for rerating of the stock (reverse DCF shows a volume 5year-CAGR of <3.5%)
- LNG prices have bounced back to $5/mmbtu, hurting spot buyers.
- Valuations are almost half of what IGL commands
Indraprastha Gas Ltd.:
- Pick up in EV play is a risk
- Double digit volume growth is priced in (reverse DCF shows a volume 5year-CAGR of 10%)
- Policy support driven by air pollution in structural
- New but fewer GAs bid in 9th and 10th round will bring volumes
- Infrastructure bottlenecks less of an issue VS Mumbai
Gujarat Gas Ltd.:
- Inclusion of NG under GST will benefit the industrial segment the most
- High spot LNG exposure (post Morbi ban, share of spot increased); LNG prices have bounced back to $5/mmbtu, hurting spot buyers.
- Dependence on industrial segment reduces risk of third party in Open Access
- Sticky clients; no easily switching to alternates
Adani Gas Ltd.:
- Highest growth, lowest opex and strong parentage
- Many new GAs; aggressive bidding in 9th and 10th round
- Open Access is far away, even if its comes into existence
- Highest CNG throughput
- Brand Total
- Extension to LNG Business
- Funding for CGD Business
- Operational Excellence
- Fuel Retail business
- Execution is key
CGDs as an investment theme:
- Volume growth at 17% CAGR over next 5 years, to 55mmscmd
- Monopoly for initial 8 years; post 8 years open access
- Policy support and focus on pollution (NGT is a positive swing factor)
- Govt thrust on new areas for bidding
- CGD margins are not regulated; they just compete with alternate fuels
- High margins
- Penetration story: volume growth
- Gas vs alternate fuels
- Coverage under GST will be a positive
Risks to this theme:
- Change in priority in gas allocation policy
- Delay in new growth volumes
- Drop in price of alternate fuels
- Open Access Policy for 20-25% of CGDs network
- 12%
post tax ROCE
- Leading
to drop in market share
- May
lead to price-war
- Increase in OMC commissions
- Regulation on end use pricing
- Increase in APM pricing / change in the APM calculation formula
- Scale up of EV
- Petrol & Diesel under GST
- Misutilization of cash on the balance sheet
Amongst all the demand drivers, CGD is the sector which is structurally going to grow massively, which will lead to spurt in demand for NG.
2D. Refineries, Petchem & Others:
Combined they have a demand of ~50 mmscmd. Not much fresh demand is expected to come from this segment. These segments mainly consume RLNG. IOCL and Reliance are biggest refinery users. We are not dwelling into these segments in detail for now.
3. Supply Drivers:
India does not have any great reserves of NG, hence we see that ~50% of the NG requirements are met through imports. Going forward, the imports are only going to increase in absence of any meaningful increase in domestic E&P.
3A. Domestic Supply:
From the above chart it is seen that domestic production of NG dropped drastically post 2011 which was mainly due to the failure of KG-D6 fields where reserves were not too much and output started to decrease. And also there have been no new discoveries of any good NG fields from where production can be done.
Some Facts:
- Negative growth in the last decade
- Dominated by PSU companies
- No market free pricing; pricing is regulated
- Allocation decided by Govt.
ONGCs 98/2 field, and Reliance's 98/3 & restarting of KG-D6 to drive domestic production; back ended FY2023 onwards; likely to add ~25 mmscmd. But this is also likely to be more aggressive and may be delayed, putting more pressure on the imports. Hence domestic supply is more or less predictable and it is very much insufficient to cover up the entire gas demand of the country over the next decade.
Hence imports are going to take the majority share if there is an aggressive incremental uptick in demand.
The share of private players is dropping since 2011 for the reasons mentioned above as India does not have any great NG reserves, and given the interference of Govt w.r.t pricing and allocation policies, there is no major foreign player involved in domestic NG exploration and procurement.
3B. Imports of NG:
RLNG is a process of converting liquefied natural gas (LNG) back to NG. The process includes liquefaction of
natural gas and its transportation in liquefied form through specialized carriers to the destination, the RLNG terminal
where it is converted back into gaseous state. The gas is converted to liquid form for ease of storage or transport. It takes
up about 1/600th the volume of natural gas in the gaseous state. This makes LNG cost efficient to transport over
long distances where pipelines do not exist. There are 2 ways of transporting gas between the countries:
- Transnational Pipes: NG is passed through these pipes in the gaseous state only.
- Liquefaction: NG is liquefied, and then shipped to destination, where it is re-gasified.
This entire value chain is explained below:
Most of the traded NG happens under the LNG route through the sea route (via ships).
A brief snapshot of movement of LNG trade is given below:
As seen earlier, India imports ~50% of its NG demand. Most of the imports happen from Qatar, and other countries like Nigeria, Australia, Angolio, Oman, etc.
LNG Price history:
As you can see, the LNG prices have dropped to their lowest in many years. However, by September 2020, the prices have rebounded back to $5.
LNG Trade:
Whenever a new investment and production of NG is happening, the producer will lock up their quantities under long term sale contracts (that is how they secure their sales). Even the buyer of LNG wants to lock up LNG procurement on long term contracts to ensure continuity and timely deliveries of supplies. Hence, very less amount of LNG is usually traded on spot markets.
However there is a glut of LNG production these days (demand drop). However, with lesser supplies expected in future, LNG prices will remain firm.
Approx. cost of shipping is $0.60/mmbtu (different for different routes)
LNG Pricing:
LNG imports pricing is usually linked to the following:
a. Crude Linked:
Most of the old contracts were crude linked i.e. say 13% of crude i.e. 13% of $40 i.e. $5.2 and that is how the deliveries used to happen. Now assume a scenario like the present one, where the spot LNG prices were low ($2) but crude has rebounded back to $40+. Hence deliveries under such contract are expensive as compared to spot markets.
b. Gas Indices Linked:
In the last decade, most of the contracts started to then happen on index linked i.e. Henry Hub or EU index. Hence the cost of deliveries under contract more or less match with spot (with some lag).
C. Hybrid:
More recently, the lot of contracts have started to happen on hybrid formulas considering crude as well as gas indices.
Fixed Investment Decisions (FIDs):
Investment decisions (to put up a NG production plant) which are final in nature (surely going to happen), can be looked upon YoY to figure out which years have more FIDs. A conversion period of 5-6 years for an actual plant to start from the date of announcement of FID. A lot of FIDs have been taken up in 2018-2020 period, for which supply should start coming in by 2025 onwards. However in the period between 2015-2018, number of FIDs were very low. Hence our view is that LNG prices will remain firm and under supplied between 2020-2023 and post 2023 LNG market will start to look oversupplied putting pressure on the LNG prices.
Major countries with high FIDs are USA, Russia, Qatar and Mozambique.
LNG vs Alternate Fuels:
Very similar to domestic gas, the landed cost of LNG + re-gasification charges have to compete with alternate fuels (LPG, petrol, diesel, fuel oil, naphtha, coal, etc.) for them to be viable to generate demand.
Terminals in India:
India is an importing country and hence it needs to have the receiving terminals which can receive LNG, store it and re-gasify it. These days, there are floating terminals too with which you can receive at different ports with a same terminal. Majority of the operational terminals are on the West coast, since the pipeline infrastructure is more developed in the West.
After LNG is received, it is technically a regional market, because there is a cost to move it. While setting up any terminal, it is important that the onward gas pipeline infrastructure is complete; otherwise the terminal will remain under utilized (Kochi terminal).
Also, a lot of new terminals are new being planned on the east coast as well, since the East-West pipeline connectivity is getting improved.
Existing Terminals In India:
Dahej is the lowest cost terminal, because of it is one of the earliest terminals in India, and hence it has an edge is pricing its re-gasification charges.
Upcoming Terminals In India:
These new terminals will not will not only ease import constraints in the existing western and northern markets but also make gas available in the southern and eastern parts of the country.
Some Facts:
- Pipeline network key for ease of supply; any delay hurts terminals
- Ease in importing constraints
- Both Land + Floating capacities are coming up
- India is a net importing country
- Govt. may regulate re-gasification tariffs in future
- Revival of stranded gas power and fertilizer plants to drive demand
- Increase in domestic output is a key risk; 19MT capacity will be operational over next 2 years.
- India is adding too many new terminals
LNG Cost Buildup:
Re-gasification is the main income for the re-gasifiers who operate this terminals. Terminals are operated in 2 ways:
1. Some terminals are already booked by the buyers of LNG (eg: Gail) who import the LNG by themselves and use the terminal for re-gasification.
2. Some terminals have buyers whose procurement is also done through re-gasifiers i.e. IOC will tell Petronet about its requirements and Petronet then imports it on behalf of their buyers. In this case, for re-gasifiers the pricing of buying and selling is more or less matched and hence they are not exposed to taking a call on the LNG movement.
Petronet LNG:
- Promoters are customers
- Re-gasificatoin is not regulated by the Govt.
- Set up costs among the lowest (early players); Dahej lowest re-gasification tariffs
- Proximity to demand geographies
- Dahej: ~9MT is take or pay; ~8MT is use or pay
- Utilization of cash is key
- Tellurian upstream a spoiler as landed cost may be $6.8/mmbtu (as compared to softer LNG spot prices)
4. Transmission & Marketing:
Indian pipeline grid is given as under:
Existing Capacity & Utilization:
India already has a pipeline network of >16,000 kms. As mentioned earlier, most of the network is developed on the west coasts and north. ~74% of the network is developed by Gail.
Gail has been actively engaged in developing this network and working towards development of national gas grid.
- 61% of the ready capacity is owned by Gail; while 73% of the volumes are transmitted by Gail.
- Network and transmission charges are regulated (12% post tax ROCE); but rarely the companies fetch 12% returns since utilization levels are low
- Peak utilization lowered from 100% to 75% to make attractive
- Proposal for countrywide unified tariffs @12% post tax ROE is under discussion
More than 15,000 kms of pipeline network is under progress, which will connect East and South network to the domestic gas producers and LNG terminals.
Now, let us look at companies under this segment:
Gail:
Gail (India) Ltd. is into many businesses like NG marketing and transmission, LNG imports, liquid hydro carbons, LPG transmission, Petrochemicals, E&P and CGD as well. But most of the sticky heathy profits come from transmission business and liquid hydro carbons. Some facts about Gail:
- Transmission volumes ~107 mmscmd (likely to be in a sweet spot with domestic output to be increased and increase in RLNG demand)
- NG vertical is flourishing; Petchem and LPG are weak
- Transmission tariffs don't achieve 12% ROCE because of lower utilizations
- Gail purchases LNG from US and other suppliers. US contracts are Henry Hub linked while it is being sold in India at crude linked contracts; leading to losses when crude tanks
Gail has a lot of value, but triggers are missing for it to grow.
GSPL:
- Transmission volumes @~35 mmscmd
- Presence in Gujarat; rising NG consumption in Gujarat
- Indirect play on Gujarat Gas Ltd. (holds 54%)
5. Presence of PSU:
A lot of PSU companies are present in the entire value chain as below:
a. E&P:
ONGC
OIL India
b. Transmission:
GAIL
GSPL
c. Re-gasification:
Petronet
IOC
GAIL
d. CGDs:
IGL
MGL
GGL
Just be mindful of the above.
6. Gas Trading Exchange:
The main idea behind putting up any commodity exchange trading is the excess of supply.
- The main idea behind setting up of gas exchange was trading in imported LNG
- Can access NG on short notice / spot buying
- Target is ~3% of overall volumes
- Transaction charges can be Rs.5-7/mmbtu
- This will break marketing business of Gail and GSPL into more number of players
- Market based discovery of prices
- After 10 years of being in existence, power exchange has reached 4% of overall volumes; quick decent volumes will lead to success of gas exchange
We think the volumes will pick up a lot, whenever all the new supplies (domestic + terminals) start to come in and the market is flooded with NG.
Summary:
We note down the regulated and unregulated part of this entire value chain in NG sector:
- Domestic E&P: Regulated
- Re-gasification: Not regulated & healthy margin with volumes
- Transmission: Regulated
- Marketing: Regulated
- CGDs: Not regulated & healthy margin profile with volumes
- Fertilizer: Subsidized and sensitive
- Power: Losses and sensitive
By looking at the entire value chain, we believe 2 pockets i.e. CGDs and Re-gasification to be healthy and profitable since they are not regulated and there will be a good growth volumes that can be achieved over the next 5-7 years. We will keep a watch on trading exchange too, which can become a good potential volume play.
Thank You
Authored By Jeet Gala
Source of the data:
Some of the data used in this blog is created by Centra, while some data may have been fetched through various websites, content, files, brokerage house notes, etc. available freely on the social media.
Disclosure:
The information herein is used as per the available sources of exchanges, company’s annual reports & other public database sources. Centra Advisors is not responsible for any discrepancy in the above-mentioned data. Investors and readers of this blog should seek advice of their independent financial advisor prior to taking any investment decision based on this blog or for any necessary explanation of its contents. The blog is based on personal opinions & views of the author. Readers are responsible for all outcomes arising of buying / selling of particular scrip / scrips mentioned here in. This report indicates opinion of the author & is NOT A RECOMMENDATION to buy or sell securities. Centra Advisors & its representatives may or may not have any vested interest in above mentioned securities at the time of this publication. Centra Advisors, or it’s associates are not paid or compensated at any point of time, or in last 12 months by any way from the companies mentioned in the report. The views expressed in this post accurately reflect the authors personal views about any and all of the subject securities or issuers; and no part of the compensations, if any was, is or will be, directly or indirectly, related to the specific recommendation or views expressed in the report.
