Dec 27, 2011, 04.27 PM | Source: CNBC-TV18

Spot LNG prices to soften further in 2012: Petronet LNG

Sharing details of the company's expansion plans, A Balyan, CEO and Managing Director of Petronet LNG said the Hague expansion plan is on track, and the bidding process is likely to start around March-April.

A Balyan, CEO & MD, Petronet LNG
Sharing details of the company's expansion plans, A Balyan, CEO and Managing Director of Petronet LNG said the Hague expansion plan is on track, and the bidding process is likely to start around March-April.

The company has seen a robust 35% growth last quarter and going forward, Balyan said the volumes will be maintained at Q2 levels. "The main driver for the company until now has been high LNG volumes. And, the demand for gas is growing as per projections and expectations and hence, we can maintain these kinds of volumes right now," he reiterated.

Lowering concerns on fast moving prices, Balyan further added that the LNG prices are not really reflecting the right over capacity in the world. "The LNG capacity is much more than the consumption or demand. Hence, I expect spot LNG prices to be reduced in the upcoming year," he added.

Below is an edited transcript of A Balyan's interview to CNBC-TV18. Also watch the accompanying video.

Q: What exactly is happening in terms of your expansion plans? How would you line out capex going into the next year and the year after?

A: The Hague expansion plan has been approved by the board. We have completed DFR and there are two components that we are looking at — adding on regas capacity, may be one train of about 2.5 or 5 million tones kind of capacity that we need to integrate into this expansion with the existing facilities in the terminal and the second component would be the construction of tankage.

Hence, DFR is complete and we have all the approvals in place, starting with the de-feed analysis, feed work which will take about 2.5 months to 3 months and we hope to start the bidding process somewhere around March-April. So, it is very much on track and is one of our fast track projects. We are aware that we are operating the terminal at a 105-108% bracket and hence, for us it is very important to expand the capacity quickly.

Q: I am trying to understand whether you can maintain this consistency in terms of volumes? What kind of a growth do you hope to see by the time FY12 closes and getting into FY13 as well?

A: The demand for gas is growing as per projections and expectations. The growth would continue in the same way and that remains the main driver is the volumes. We have no problem as such to maintain these kinds of volumes right now. We would also be commissioning our second terminal Kochi next year around October or so. Hence, in terms of volumes the demand is very good in the country and more and more projects are gas based. There are certain policy frame work changes we are expecting in the fertilizer and power sector. Refinery sector is one of the biggest now in the country and a refining hub consumes lot of gas. So, the growth to my mind is pretty good.

Q: Putting all these projects together, by the end of next two years what kind of a capacity would you hope to have at Petronet?

A: The challenge is to enhance the capacity at Hague, from existing 10 million tones to 15 million tones. Our marine facilities, jetty should be commissioned somewhere around 2013 and we are targeting to add on some more degasification capacity by that time, in order to start regasifying higher volumes. So, by 2013 from the present level we would be moving up to 12 or 13 million tone capacity at Hague. If we are able to implement the degasification facility plus 5 million tone of Kochi, we would be somewhere around bracket of about 18 million tones capacity in the country.

Q: What kind of rough range you think spot LNG prices may hold into net year though because on that there is some concern that prices are moving extremely fast and any discrepancy in volumes may actually hit Petronet LNG going into next year?

A: We have a 7.5 million tonne back to back arrangement and that is a better priced long term price for LNG. We also have some short term arrangements, cargos already lined up for next year. They are also good price and they are sold back to back. The prices are not really reflecting the right over capacity situation in the world. The LNG capacity is much more than what the consumption or demand is there.

Hence, the prices should soften in terms of spot cargos happening. In the west-coast  of India, it is around USD 14 a million MMBtu  which was about 3-4 months back around USD 16-17. So, I see a small softening of the spot cargos.

Q: In terms of a timeline, when do you think you would finish signing your international long term gas supply contracts in both Qatar and in Russia?

A: We are in the last phases of our discussion with RasGas Qatar. In a month or two months we can close this deal. The idea is to get whatever better pricing for the country. So, we are pretty close to finalizing our deal with RasGas. With Gazprom it will take some more time. We are in negotiation because this gas we are looking at either bringing at kochi or in the east coast proposal and from the portfolio that Gazprom also would take about may be about 1.5-2 years time. We have exchanged our documents and we have had 2 meetings with them.

Petronet LNG stock price

On November 27, 2015, Petronet LNG closed at Rs 230.95, down Rs 0.9, or 0.39 percent. The 52-week high of the share was Rs 238.00 and the 52-week low was Rs 159.80.

The company's trailing 12-month (TTM) EPS was at Rs 12.79 per share as per the quarter ended September 2015. The stock's price-to-earnings (P/E) ratio was 18.06. The latest book value of the company is Rs 75.85 per share. At current value, the price-to-book value of the company is 3.04.

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