PLNG valuations remain attractive, but near-term downtrend likely

Petronet LNG (PLNG) gets 8.5 mmtpa of LNG from Qatar (50 per cent of its volume) and PLNG has issued a press release in response to QatarEnergy's notice of force majeure

The damage caused to Qatar’s Ras Laffan 82 million metric tonnes per annum (mmtpa) facility in the ongoing Iran war has led to a shutdown of gas exports. The facility processes 20 per cent of global LNG supply. Iran’s Pars gas field has also been hit, while the UAE has shut its gas facilities as well. 

 

India imports 50 per cent of its gas requirements in the form of LNG — 9.5-10mmtpa or 40 million of cubic metres of gas per day (mmcmd) — and around 25 per cent of this comes from Qatar’s plant. This means that the Ras Laffan closure affects volumes for Petronet LNG (PLNG), GAIL, Gujarat Gas and other gas companies. The government has stated that 25 per cent of India’s natural gas requirements are impacted due to the Strait of Hormuz blockade. Also 40 per cent of India’s LPG requirements have been affected, even when accounting for a possible 25-30 per cent rise in domestic LPG output).

 

PLNG gets 8.5 mmtpa of LNG from Qatar, or 50 per cent of its volume. As a response to QatarEnergy’s notice of force majeure, PLNG has issued corresponding force majeure notices to offtakers like GAIL, IOCL and BPCL. India’s gas marketing companies have also informed industrial customers that supply would be curtailed by 10-50 per cent.

 

The Qatar shutdown could be for a prolonged period implying disruption to India’s LNG supplies even if Hormuz is cleared. The Centre estimates India’s natural gas usage of 189 mmscmd, of which 92 mmscmd is imported; about 47.4 mmscmd of gas imports has been impacted currently. Gas companies are seeking alternatives. India doesn’t have much gas inventory, due to challenges in storing gas. The government has already set priorities for gas allocation with minimum booking time for domestic customers increased. It is possible further cuts will be required. While two Indian-flagged vessels carrying 92.7 kilotonnes (kt) of LPG (equivalent to 1 day of demand) have reached India, 22 Indian ships are still stranded in the Persian Gulf. 

 

Gas prices have doubled from $10 per mmbtu to nearly $20 per mmbtu and further rise in prices due to volume disruption is probable. The supply shock affects every gas company and oil marketing company. The supply tightness impact for GAIL is estimated at 34-36 mmscmd, which will be an estimated ₹250-300 crore per month of impact on the operating profit. PLNG's Dahej utilisation is falling to 50 per cent or lower, according to management. City gas distribution (CGD) companies face margin pressure.

 

GAIL losses across transmission and trading are somewhat offset by the new gas pooling mechanism (PPAC-determined price treated as cost) allowing GAIL to escape potential losses from obligations to supply contracted gas through spot purchases. But earnings will be weak until the situation is resolved and the stock price has seen significant correction from pre-war levels.

 

While tariff renegotiation is not under discussion, PLNG may offer volume-linked incentives to drive Dahej utilisation. Receivables remain secured with CY22 use-or-pay dues of ₹690 crore backed by bank guarantees and the majority of CY23 receivables (₹610 crore) also covered. The impact is volume-led so far, rather than margin-driven.

 

PLNG’s management says India-specific trains were not damaged at Ras Laffan and supplies to India may resume quickly once the force majeure is lifted. However, it would be conservative to assume no supplies from Qatar for the next four months at least. The management also says use-or-pay customers (32 per cent of total available capacity) are taking volumes at normal rate.

 

The long-term gas import story is strong, assuming easing of tensions in West Asia. Given long-term gas demand growth potential of 6-7 per cent per annum, imports will accelerate. Global LNG export capacity growth is also set for capacity additions over the next five years. PLNG’s 5 mtpa capacity expansion is expected to be commissioned by the end of FY26.

 

Analysts have cut the pre-war operating profit projections for PLNG for FY26 and FY27 by double-digits, with FY27 likely to see operating profit drop by 25 per cent or more. Volume impact may be partly offset by 5 per cent increased regas tariff.

 

The stock has seen steep correction and if the war continues indefinitely, a further downtrend is likely. But given the long-term trend of gas demand and the inescapable logic of imports, there’s a point at which value investors will look to enter PLNG.