The Petroleum and Natural Gas Regulatory Board (PNGRB) recently announced eligibility conditions for registration of LNG terminals. The new norms, in addition to technical and safety standards, mandates new and operating terminals to have common carrier capacity of 20 per cent of short-term uncommitted capacity (less than five years contract) or 0.5 million metric tonnes per annum (MMTPA); whichever is higher. While these norms increase investor concerns regarding potentially strict regulations on Petronet LNG’s (Petronet) tariffs and margins, analysts believe the company will not be impacted significantly.
Petronet’s existing terminals will not be materially impacted by these norms as the notification is applicable only to those LNG terminals that are established after the PNGRB was set up, ie post-October 2007. Notably, Petronet’s Dahej terminal started operations in 2004 and hence, will not be subject to these new norms. Further, Petronet’s upcoming terminals at Kochi and Dabhol will also not be impacted by these norms as these were planned much before October 2007, believe analysts. The notification also states that common carrier capacity would be provided at publicised tariffs. This could mean indirect regulation on tariffs and capacity of new LNG terminals.
“In our view, open access will likely result in market-determined (and lower) marketing margins and may be a precursor to the eventual regulation of re-gasification business,” believes Tarun Lakhotia of Kotak Institutional Equities. Further, in addition to impacting new investments these proposals would increase operating rates of these terminals (due to higher third-party usage).
Most analysts have been conservative while estimating Petronet’s future marketing margins and hence, most of these concerns appear to have been factored in by the street. Lakhotia has assumed marketing margins of $0.25/million British thermal units (BTU) on spot LNG imports in the long term versus $1/million BTU in the first half of FY13.
“We think that Petronet’s Dahej and Kochi terminals are unlikely to be impacted by this open access requirement. Petronet is the most advanced among its peers for new capacity additions and regulatory concerns are lowest for PLNG among the gas names,” believes Anil Sharma of Nomura Equity Research.
Most analysts remain bullish on Petronet and expect it to clock in strong volume driven growth, going forward. “Petronet’s utility nature of business (stable re-gasification margins and term contracts), low regulatory risks and expanding volumes on account of strong demand estimates, hold it in good stead. We believe the recent correction of eight per cent from its recent highs provides a good opportunity to enter the stock,” says Deepak Pareek, analyst at Prabhudas Lilladher.