Non-starter Kochi terminal makes Petronet LNG bleed
Petronet LNG’s failure to commission pipelines for the Rs 4,000 crore Kochi LNG terminal connecting the demand centres of Mangalore and Bangalore is likely to cost it around Rs 400 crore this year.
India’s major supplier of liquified natural gas faces a Rs 100 crore burden every quarter till the pipelines are commissioned.
The 5 million tonnes per annum terminal is running at close to 5 per cent capacity, making up for some of the losses through offloading-storage-reloading transactions and replacing of bunker fuel of many ships travelling to Europe and North America. The value of these transactions is very low and needs to be analysed over a period to know the true potential.
“A lot of support is coming from the Kerala government to lay the pipelines. Several committees have been formed at the highest levels, which have met the district commissioners and other authorities concerned to ensure the required support for the pipeline,” said AK Balyan, MD and CEO.
The second pipeline to connect Bangalore that goes through Tamil Nadu is sub judice at the Supreme Court. “We had one hearing earlier this month and expect another next month. If any of these pipelines come up in next one-and-a-half years, we expect capacity to go up to 30 per cent,” he said. Land acquisition is taking longer, as in contrast to people in other parts of the country, south Indian people are new to the concept of gas pipelines that run under the ground and have a risk perception. Some 10,000 km gas pipelines are already operational in north and west India.
At present, Petronet LNG supplies around 0.3 mtpa to BPCL’c Kochi refinery and also to fertiliser company FACT, which resumed last month after the company cancelled an earlier pact.
Trying to mitigate some of the losses in the short term, Petronet has completed one bunkering and one reloading facility each. It is also looking at the possibility of cooling down ships.
“It is difficult to estimate the numbers at present. It definitely is a strong opportunity for the future, as has been the case in other Southeast Asian countries such as Singapore,” said Balyan. The Kochi LNG terminal came up primarily to cater to the power and fertiliser companies in the region, especially NTPC’s 350 mw Kayamkulam gas-based plant. But as gas production dipped and LNG prices soared, these plants began to run at very low capacities having failed to pass on the higher cost to consumers.
GAIL, the pipeline-laying authority, has written off the asset in its books due to contractual requirement. But the company can invite fresh tenders once favourable decisions come from Tamil Nadu and the Kerala government moves faster in clearing the road blocks, Balyan said. GAIL officials could not be reached for comments.
Deepak Pareek, a senior analyst with PhillipCapital, said Petronet’s stock performance has been subdued due to lack of any positive catalyst and a failure to resolve gas evacuation for the Kochi terminal.
“We further prune our estimate for the Kochi terminal utilisation in the medium term to 0.3 mtpa, 1.3 mtpa, and 3.0 mtpa for FY16, FY17 and FY18 respectively, given the delay in decision making. The back-to-back nature of the contracts is likely to protect the company’s earnings despite term LNG prices remaining higher than those for spot LNG. We maintain a ‘neutral’ rating on the stock with a target price of Rs 179,” Pareek said.