IGI Logo

Gas marketing outlook robust despite HH surge

Henry Hub (HH) gas prices are up 11% and FY22E based on futures are up 8% since 14-Jun’21 implying HH-linked US LNG cost rise for GAIL. Oil and spot LNG prices are also up boosting GAIL’s US LNG realisation. GAIL’s FY22E gas marketing EBITDA, assuming entire volume is sold at oil-linked prices, is down 5% to Rs37.7bn vs our estimate based on futures as of 14-Jun’21 but that assuming 20-28% of US LNG sold at spot prices at Rs50.4-55.7bn is up 4-7% and that in most likely scenario is up 2% at Rs36.4bn. Also, estimates in all scenarios are 32-102% higher than our FY22E gas marketing EBITDA of Rs27.6bn. FY23E gas marketing EBITDA estimates in various scenarios are the same as earlier or marginally higher.

Gas marketing EBITDA outlook remains robust. Reiterate BUY.

* HH price rise steeper than in Brent, but modest compared to spot LNG: HH gas price has surged 11% to US$3.7/mmbtu over the last 15 days, while during the same period Brent is up 3% to US$74.7/bbl and JKM spot LNG is up 3% to US$12.5/mmbtu. FY22E HH is up US$0.25/mmbtu (8%), Brent up US$1.5/bbl (2%) and JKM spot LNG up US$1.2/mmbtu (11%) based on futures as of 30-Jun’21.

* FY22E gas marketing EBITDA assuming US LNG sale at oil-linked price down 5%, but in most likely and other scenarios up 2-7% vs earlier estimate: Rise in FY22E HH would increase GAIL’s US LNG cost, but its realisation would also modestly rise in case of oil price linked sales, and more steeply in case of sale at spot prices.

* The net impact vs our estimate as of 14-Jun’21 is, trading profit on sale of US LNG at oil-linked prices is down 7% to US$1.4/mmbtu, but that on sale at spot prices is up 26% to US$4.7/mmbtu. FY22E gas marketing EBITDA assuming sale at oil-linked prices at Rs37.7bn is down 5% vs our estimate based on futures as of 14-Jun’21 while that assuming sale at spot prices at Rs50.4-55.7bn is up 4- 7% and that in most likely scenario is up 2% at Rs36.4bn.

* Estimate in all scenarios are 32-102% higher than our FY22E gas marketing EBITDA of Rs27.6bn. FY22E HH is up US$1.3/mmbtu YoY while JKM spot LNG is up US$7.2/mmbtu and Brent up US$27/bbl YoY, which implies trading profit on sale of US LNG at oil-linked prices is higher by US$2/mmbtu and at spot prices by US$5.8/mmbtu YoY.

* FY23E gas marketing EBITDA flat or higher: FY23E gas marketing EBITDA assuming US LNG sales at oil-linked prices at Rs44bn is same as earlier, while that assuming some sales at spot prices and in most likely scenario is up 1-2%.

To Read Complete Report & Disclaimer Click Here

For More ICICI Securities Disclaimer https://www.icicisecurities.com/AboutUs.aspx?About=7

Above views are of the author and not of the website kindly read disclaimer