Gas stocks surge on the news of RasGas may modify SPA with Petronet

On Friday the shares of gas stocks such as GAIL, Petronet LNG, Gujarat gas, Indraprastha Gas & Gujarat state petroleum ltd. rallied up to 17 percent in trade. The reason for the surge is reportedly that RasGas is ready to modify its Sales and Purchase agreement (SPA) with Petronet LNG.

RasGas Company Limited is a liquefied natural gas producing company in Qatar. It is the second-biggest LNG producer in Qatar after Qatargas. Petronet has a 25-year deal with Qatar’s RasGas to buy 7.5 million tonnes of LNG annually.

Petronet LNG, India's biggest gas importer would face a Rs. 10000 crore hit if it did not modify its SPA with RasGas. In that situation Petronet would not be able sell gas worth Rs.9400 crores as the current prices of LNG are half of what Petronet LNG pays RasGas. The buyers would have rejected LNG at that price from Petronet. But Petronet has take-or-pay contract which means it is bound to pay its supplier even if it does not take cargoes.

As many Indian buyers are refusing to buy costly gas, Petronet could import only 68% of the committed LNG from RasGas so far in 2015. With this Petronet also has to pay hefty demurrage for ships unable to unload at the port. Payment to RasGas is temporarily parked in current investments that have risen from zero in March to Rs 1,350 crore.

But Petronet also has a similar take or-pay agreement with GAIL, Indian Oil and Bharat Petroleum and can pass on the entire liability to those who can further pass it on to their customers such as state-run fertilizer units.

The only solution to the given situation is to rework the formula between RasGas and Petronet. So on Friday the news of modification of SPA between the two helped the gas stocks to surge given their interconnection with the SPA.