Lower global natural gas prices amid a milder winter in Europe are expected to improve the performance of Indian city gas distribution (CGDs) companies and importers, according to experts and industry executives.
Spot liquefied natural gas (LNG) prices are currently trading at about $10 per million metric British thermal units (mmBtu) due to a milder-than-expected winter and high inventory levels in Europe.
“Spot LNG prices have corrected by over 30 percent in the past 1-2 months to USD11-12/mmBtu currently as the ongoing winter season peaks with no major disruptions and the near-to-medium term supply outlook looking comfortable, as per our checks,” Emkay said in a report. “Major spot LNG plays in our coverage universe are Gujarat State Petronet (GSPL), Gujarat Gas (GUJGA) and Petronet LNG (PLNG), which tend to benefit from lower rates.”
The LNG market was disrupted in 2022 by the Russia-Ukraine war with worries looming over Europe as Moscow was its largest gas supplier. However, Europe was able to maintain a healthy inventory amid muted demand and milder temperatures.
Little pressure on prices
“Europe entered the winter season with higher inventories compared to last year. Lower demand as milder winters in NE Asia and Europe resulted in lower-than-expected depletion of inventory. EU storages were strong at ~82.6% vs 5 years average of 70.4%,” Reliance Industries said after its results on January 19.
“Short-term prices will be guided by the severity of the winter,” said Sanjay Roy, senior vice-president for exploration and production at Reliance Industries. “There has been some pickup in demand from China and some signs of higher demand in Southeast Asia. Overall, there is a little bit of pressure on gas prices.”
Reliance said the global gas market is expected to remain volatile, with higher European Union storage and demand uncertainties.
In the domestic market, city gas distribution company Mahanagar Gas reported a consolidated net profit of Rs 317.18 crore in the December 2023 quarter, which is 84 percent higher than Rs 172.07 crore recorded a year earlier, amid lower gas costs. The company’s total volumes stood at 3.671 million metric standard cubic metres per day (mmscmd) in the third quarter, a growth of 2.69 percent from the previous quarter.
Managing director Ashu Shinghal told Moneycontrol the company’s total consumption was 3.6 mmscmd, mostly from government-awarded fields and at prices set by the government.
The company’s EBITDA margin further moderated to Rs 13.3/scm in the third quarter, which was slightly higher than the estimate of Rs 13/scm, JM Financial said in a report after Mahanagar Gas declared its results.
This was primarily due to average gas cost being lower at $9.1/mmBtu or Rs 27.3/scm in 3Q compared with JM Financial’s estimates of $9.2/mmBtu or Rs 27.6/scm ($ 9.2/mmBtu in 2Q). This was further aided by marginally higher-than-expected net realisation at Rs 46.5/scm, JM Financial said in the report.
Indraprastha Gas, Petronet LNG and GAIL (India) are scheduled to announce their third-quarter results in the coming days.
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