LNG business not under regulator's domain: Petronet LNG

In an interview to CNBC-TV18, A Balyan chief executive officer and managing director, Petronet LNG, says the domain of re-gasified LNG or LNG business does not fall under the domain of regulator. He also says that prices of LNG have gone up in the last six months.

"It’s time that a realistic price regime comes in practice in the world." said Balyan. Below is the edited transcript of the invetview with CNBC-TV18. Also watch the accompanying videos. Q: Gas space has worried everyone from analysts to investors. There are two main concerns with regards to Petronet LNG – one is, a possible cap on marketing margins and the other being regulation of LNG. Do you believe any of these are possible?
A: On marketing margin issue, more than 90% of our LNG is sold back-to-back to GAIL, IOC and Bharat Petroleum. We are not engaged in any retailing activity of our own. The bulk is sold to these three off takers and they do the retailing. As a matter of fact, this does not attract any marketing margins. There is very small quantity that goes directly to some of the customers like Essar or Reliance. The domain of re-gasified LNG or LNG business does not fall under the domain of regulator. Q: Did you speak to anyone at the PNGRB or in the ministry to clarify this doubt?
A: We don’t have any doubt and if required we will speak or write to the PNGRB or any other authority. We are quite clear, the empowerment is very clear. As far as IGL and other companies are concerned, it is actually concerning the transportation services and the compression services along with the marketing margin that attracts and definitely falls under the regulators domain. Q: There is a feeling in the market that the PNGRB may not let companies escape with high returns. Do you think there is a rational behind capping of returns or it’s not possible?
A: The overall exercise is to rationalise the processes and systems. Margins should be market driven and established by the market forces. Q: What are the margins at this point in time. Do you think that margins could improve in the current quarter because we hear that LNG prices have fallen considerably?
A: LNG prices have not really fallen considerably, on the contrary they have gone up in the the last six months. We expect it to soften now. The market can absorb higher prices and different marketing margins. It differs from market to market, but I think it should be determined by the market forces. Q: How do you see re-gasification margins moving. Do you expect a 5% increase every year or could there be a move on that?
A: As far as reclassification is concerned, they are benchmarked with the world. Many factors like different kind of terminals and capacities that come up, the expenditure made on a terminal are taken into consideration to evaluate and come to re-gasification charges. We are very competitive place in the market. Our contractual arrangement has a provision of an increase of 5% on the existing thing year to year. Q: Do you see prices of imported LNG prices coming down? What are your margin and volume expectations in FY13?
A: The demand is rising in the country. Whatever volumes we have imported and sold in the country the future volumes are likely to be of the same order or maybe little more.
We see growth near 6-8%. As far as pricing is concerned, we believe that there is overcapacity in the world. Many of the producers are holding on and trying to create an environment where the prices remain higher. Why there should be so segmented LNG markets in the world when the commodity today can be sold from any part of the world, why there should be so much of segmentation. In coming time, years, it might take a decade but will have to really soften out to be closer markets and not highly segmented ones. Q: What is the update on Kochi LNG? Are you signing anything in the near-term? What’s the feedback you are getting from suppliers?
A: Recently, we have had discussion with the Qatari delegation. We are in negotiation with Gazprom of Russia and some Australian suppliers. These do not reflect right pricing and the pricing is expected to be higher. I think it’s time that a realistic price regime comes in practice in the world. Q: So what’s the realistic price? 
A: If you compare the regime just prior to the Fukushima incident, the spot cargos were prevailing around USD 9.5 or USD 10 which reflected more realistic price regime. Long-term were also much lower than what they are right now. Nothing drastically has changed. 
More capacities have been added or will be added. Demand wise, American market has turned into exporter so growth is negative. Europe is just about 1-1.2% growth. The growth is only in Asia, largely in India and China. 
In next four-five years Russia will come up with additional capacity of 25-30 million tonnes per annum, all this is coming to market and therefore there is an overcapacity. It should be reflected in the prevailing market. We firmly believe that these prices are higher, do not reflect rightly the demand-supply scenario. Q: In the first nine months you made a marketing margin of about Rs 29-30. Do you expect to continue getting that into FY13 or cold there be a slight reduction?
A: I don’t know how you have calculated margins. We are looking at same volumes. Our major revenues come from re-gasification and we expect volumes to go up. We would be somewhere in that range.