RasGas relaxation could help Petronet avoid Rs 10k-cr hit

Gas stocks zoom as imported gas may turn cheaper

Petronet LNG's supplier, RasGas of Qatar, has agreed to modify the costly long-term offtake agreement, an online portal said. This will help the country's largest natural gas importer to avoid around Rs 10,000-crore penalty for not taking the agreed quantity of gas, unconfirmed reports said on Friday.

The development saw the shares of Petronet gain 6.7 per cent to close at Rs 220.10 on BSE, while shares of other gas suppliers GAIL (India) and Gujarat State Petronet jumped 10 per cent and 1.95 per cent, respectively. GAIL holds 12.5 per cent equity in the company.

Industry portal Petrowatch in a report said RasGas had agreed 'in principle' to postpone its collection of penalties from Petronet and Dahej Offtakers - GAIL, BPCL and Indian Oil - for turning back long-term liquefied natural gas cargoes. The report was picked up by analysts, who pointed out gains for Petronet and GAIL in case this happens.

A company spokesperson refused to respond while Petronet managing director and chief executive Prabhat Kumar could not be contacted on phone.

According to the contractual take-or-pay (ToP) agreement, Petronet can defer taking deliveries of only 10 per cent of the contracted volumes in a year and has to pay for the rest of it even if it does not take any supplies. Petronet had told BSE last month any ToP obligations would be determined after the close of the calendar year.

Equity research firm Emkay Global said in a note the take-or-pay (ToP) obligation will continue on the company. "As per the (Petrowatch) article, the ToP money is likely to be adjusted from the long-term LNG price over 13 years," it said.

It added that if the pricing formula is changed, GAIL's earnings are expected to increase 24 per cent next financial year. The development will also benefit Petronet and is a positive for companies such as GSPL, IGL and GujGas, as it could mean volume pickup and margin expansion in industrial volumes.

India has a long-term contract to buy 7.5 million tonnes of LNG a year at an indexation to a moving average of crude oil price. The price of LNG from Qatar comes close to $13 per million British thermal unit, against the $6-7 rate at which it is available in the spot or current market.

The difference has led to users preferring to buy spot LNG rather than long-term gas from RasGas of Qatar, leading to Petronet buying 32 per cent less than contracted quantity in the first nine months of 2015. Oil minister Dharmendra Pradhan had last month said India was asking Qatar to lower prices and adjust volumes not taken this year in subsequent duration of the contract. "We are in discussions. We are hopeful that with the changing LNG market and pricing, RasGas will cooperate," Pradhan had said.