Business Standard

No special impact of new regulations on Petronet

The notification is applicable only to those LNG terminals that are established after the PNGRB was set up, ie, post-October 2007

Related News

The Petroleum and Natural Gas Regulatory Board (PNGRB) recently announced eligibility conditions for registration of LNG terminals. The new norms, in addition to technical and safety standards, mandates new and operating terminals to have common carrier capacity of 20 per cent of short-term uncommitted capacity (less than five years contract) or 0.5 million metric tonnes per annum (MMTPA); whichever is higher. While these norms increase investor concerns regarding potentially strict regulations on Petronet LNG’s (Petronet) tariffs and margins, analysts believe the company will not be impacted significantly.

Petronet’s existing terminals will not be materially impacted by these norms as the notification is applicable only to those that are established after the was set up, ie post-October 2007. Notably, Petronet’s Dahej terminal started operations in 2004 and hence, will not be subject to these new norms. Further, Petronet’s upcoming terminals at Kochi and Dabhol will also not be impacted by these norms as these were planned much before October 2007, believe analysts. The notification also states that common carrier capacity would be provided at publicised tariffs. This could mean indirect regulation on tariffs and capacity of new LNG terminals.

“In our view, open access will likely result in market-determined (and lower) marketing and may be a precursor to the eventual regulation of re-gasification business,” believes Tarun Lakhotia of Kotak Institutional Equities. Further, in addition to impacting new investments these proposals would increase operating rates of these terminals (due to higher third-party usage).

Most analysts have been conservative while estimating Petronet’s future marketing margins and hence, most of these concerns appear to have been factored in by the street. Lakhotia has assumed marketing margins of $0.25/million British thermal units (BTU) on spot LNG imports in the long term versus $1/million in the first half of FY13.

“We think that Petronet’s Dahej and Kochi terminals are unlikely to be impacted by this open access requirement. Petronet is the most advanced among its peers for new capacity additions and regulatory concerns are lowest for PLNG among the gas names,” believes of Nomura Equity Research.

Most analysts remain bullish on Petronet and expect it to clock in strong volume driven growth, going forward. “Petronet’s utility nature of business (stable re-gasification margins and term contracts), low regulatory risks and expanding volumes on account of strong demand estimates, hold it in good stead. We believe the recent correction of eight per cent from its recent highs provides a good opportunity to enter the stock,” says Deepak Pareek, analyst at Prabhudas Lilladher.

Read more on:   
|
|
|
|
|
|
|
|
|
|
|

No special impact of new regulations on Petronet

The notification is applicable only to those LNG terminals that are established after the PNGRB was set up, ie, post-October 2007

The Petroleum and Natural Gas Regulatory Board (PNGRB) recently announced eligibility conditions for registration of LNG terminals. The new norms, in addition to technical and safety standards, mandates new and operating terminals to have common carrier capacity of 20 per cent of short-term uncommitted capacity (less than five years contract) or 0.5 million metric tonnes per annum (MMTPA); whichever is higher. While these norms increase investor concerns regarding potentially strict regulations on Petronet LNG’s (Petronet) tariffs and margins, analysts believe the company will not be impacted significantly.

The Petroleum and Natural Gas Regulatory Board (PNGRB) recently announced eligibility conditions for registration of LNG terminals. The new norms, in addition to technical and safety standards, mandates new and operating terminals to have common carrier capacity of 20 per cent of short-term uncommitted capacity (less than five years contract) or 0.5 million metric tonnes per annum (MMTPA); whichever is higher. While these norms increase investor concerns regarding potentially strict regulations on Petronet LNG’s (Petronet) tariffs and margins, analysts believe the company will not be impacted significantly.

Petronet’s existing terminals will not be materially impacted by these norms as the notification is applicable only to those LNG terminals that are established after the PNGRB was set up, ie post-October 2007. Notably, Petronet’s Dahej terminal started operations in 2004 and hence, will not be subject to these new norms. Further, Petronet’s upcoming terminals at Kochi and Dabhol will also not be impacted by these norms as these were planned much before October 2007, believe analysts. The notification also states that common carrier capacity would be provided at publicised tariffs. This could mean indirect regulation on tariffs and capacity of new LNG terminals.

“In our view, open access will likely result in market-determined (and lower) marketing margins and may be a precursor to the eventual regulation of re-gasification business,” believes Tarun Lakhotia of Kotak Institutional Equities. Further, in addition to impacting new investments these proposals would increase operating rates of these terminals (due to higher third-party usage).

Most analysts have been conservative while estimating Petronet’s future marketing margins and hence, most of these concerns appear to have been factored in by the street. Lakhotia has assumed marketing margins of $0.25/million British thermal units (BTU) on spot LNG imports in the long term versus $1/million BTU in the first half of FY13.

“We think that Petronet’s Dahej and Kochi terminals are unlikely to be impacted by this open access requirement. Petronet is the most advanced among its peers for new capacity additions and regulatory concerns are lowest for PLNG among the gas names,” believes Anil Sharma of Nomura Equity Research.

Most analysts remain bullish on Petronet and expect it to clock in strong volume driven growth, going forward. “Petronet’s utility nature of business (stable re-gasification margins and term contracts), low regulatory risks and expanding volumes on account of strong demand estimates, hold it in good stead. We believe the recent correction of eight per cent from its recent highs provides a good opportunity to enter the stock,” says Deepak Pareek, analyst at Prabhudas Lilladher.

image

Read More

Sebi exempts CARE Ratings from IPO grading process

The Securities and Exchange Board of India (Sebi) has exempted rating agency Credit Analysis and Research (CARE Ratings) from the mandatory grading ...

Recommended for you

Advertisements

Quick Links

Market News

Sebi looking into concerns over commission cap in MF industry

AMFI's decision to implement cap on upfront commission from April has created a rift among large mutual fund houses and small players

Nearly 400 listed cos yet to appoint women directors

More companies expected to appoint women directors before April 1 deadline

Top 10 companies shed over Rs 1 lakh cr in m-cap

TCS top loser whose market capitalisation saw an erosion of Rs 18,304 cr

Foreign fund inflows hit $13 bn

Analysts expect the inflows to accelerate further in view of Parliament clearing bills related to insurance, coal allocation and mining

Commexes' turnover drops 41% till March 15 of FY15

Their business stood at Rs 98.57 lakh cr in same period of corresponding year

 

Back to Top