Pricing Impact; Petronet renegotiates with RasGas, markets cheer

Country's largest natural gas importer and a Government of India enterprise, Petronet LNG has renegotiated its sale and purchase agreement (SPA) with Qatar based RasGas, one of the global majors in natural gas import. Under the agreement, Petronet will lift liquefied natural gas (LNG) at USD 6-7 per million British thermal units (mBtu) from RasGas against nearly half of the current rate of USD 13 mBtu. It will also import an additional 1 million tonne per annum (MTA) of LNG for onward sale to four Indian entities i.e Indian Oil Corporation Ltd.(IOCL), Bharat Petroleum Corporation Ltd.(BPCL), GAIL (India) Ltd. and Gujarat State Petroleum Corporation till the contract expires in 2028.

Petronet LNG is a company promoted by ONGC, GAIL, IOCL and BPCL for import, storage and regasification of LNG. RasGas is a LNG producing company. It is the second-biggest LNG producer in Qatar after Qatargas. Petronet has a deal with RasGas to buy 7.5 mta of LNG. The additional 1 mta of LNG will be in addition to current 7.5 mta.

Petronet LNG was facing a Rs 10000 crore hit; if it would not have modified its SPA with RasGas. In that situation Petronet would not have been able sell gas as current market prices of LNG are half of what Petronet LNG pays to RasGas. But Petronet has take-or-pay contract with its customers which means it is bound to pay its supplier even if it does not take cargo. Still because of high prices, some of the Petronet’s customers in the power, steel and fertiliser sectors preferred to meet some of their requirements from the global spot market.

As many Indian buyers refusing to buy costly gas, Petronet imported only 2/3rd of the committed 7.5 million tonnes of LNG from RasGas so far in 2015. With the renewed agreement quantities not taken by Petronet this year will need to be bought during the remaining term of the contract and Petronet received a waiver of Rs 12000 crores from the hefty demurrage for less import than committed.

On the financial front, Petronet's operating revenue increased by 4.64 per cent to Rs 39500 crores in FY15 from Rs 37747 crores in FY14. The EBITDA margin of the company decreased from 4.19 per cent in FY14 to 4.03 per cent in FY15. Net profit stands at Rs 883 crores in FY15, an increase of 23.87 per cent from last year. The reworked formula with RasGas will help the company to significantly improve its financials.