GAIL Q2 net profit down 46% on higher prices, Russian gas disruption

In an emergency bid to secure stable LNG supply, GAIL has sought to expedite talks on short- and long-term supply deals with Gulf firm ADNOC

State-run Gas Authority of India (GAIL) on Friday reported a 46 per cent drop in net profit during the second quarter (July-September), as higher global gas prices and disruption in supply from Russian energy giant Gazprom hurt business.

Net profit stood at Rs 1,537.07 crore in the July-September quarter compared to Rs 2,862.95 crore in the same period a year back. The profit was sequentially down 47.2 per cent from the Rs 2,915.19 crore figure in the April-June quarter.

While EBITDA was down 59.4 per cent quarter-on-quarter, margins slipped to 4.6 per cent in the second quarter of the current fiscal from 11.6 per cent in the previous April-June quarter. Revenue from operation was up 79 per cent to Rs 38,390.89 crore.

Gazprom Marketing and Trading Singapore (GMTS), now a subsidiary of Gazprom Germania, stopped delivering LNG to GAIL under a long-term contract in late May, GAIL Director (Finance) R K Jain said after the results were announced.

Back in 2012, Gazprom’s former subsidiary, Gazprom Marketing and Trading Singapore (GMTS), had signed a 20-year contract to supply GAIL with 2.85 million tonnes of LNG a year. Supplies under the deal had started in 2018 and the full volume was expected to be reached in 2023.

But earlier this year, GMTS got housed under Gazprom Germania GMBH, after which Gazprom gave up its ownership of the company in April without any explanation, and imposed sanctions. As the diplomatic fallout of the Ukraine war escalated, Germany seized control of Gazprom Germania in April.

So far, GMTS has defaulted on the supply of 17 cargoes or shiploads, including 13 in the second quarter (July-September), he said. To mitigate disruption in the supply of 8.5-9 million standard cubic meters per day or roughly 20 per cent of all gas supply, GAIL had to cut supplies to fertiliser plants as well as some industrial consumers, he added.

It also reduced the gas supply of its Pata petrochemical plant in Uttar Pradesh by as much as 3 mmscmd, leading to the plant operating at just 40 per cent of the capacity, he noted. This reduced capacity and lower petrochemical prices hurt earnings from the business.

It posted a pre-tax loss of Rs 346.22 crore in the petrochemical business in Q2, compared to a Rs 363.29 crore loss a year back and Rs 35.16 crore loss in April-June 2022.

GAIL made up some of the volumes lost by buying LNG from the spot market, where prices are higher than the long-term deal which hurt marketing margins, Jain stressed.

Tough times

In an emergency bid to secure stable Liquefied Natural Gas (LNG) supply, GAIL has sought to expedite talks on short- and long-term supply agreements with the Abu Dhabi National Oil Company (ADNOC).

The pact explores collaboration opportunities in LNG supply, decarbonisation, and future sales. Up to 55 per cent of India’s local gas demand is met through imports. On the other hand, while gas meets only 6.2 per cent of India’s energy needs, the Centre has been planning to raise this figure substantially, in order to reduce the dependence on petroleum.

GAIL's mainstay natural gas marketing business saw revenues double but profitability declined 66 per cent. Higher gas prices, resulting from a global surge in energy rates following Russia's invasion of Ukraine hurt margins, the company said.

GAIL said it transported 107.71 million standard cubic metres per day of natural gas in Q2 (July-September), down from 109.47 mmscmd in the previous quarter. Gas marketing volumes also dropped almost 8 per cent to 92.54 mmscmd.