Fitch Ratings on Tuesday reduce its India fuel consumption outlook for the present fiscal to a development of 5 per cent because the current spike in home fuel costs and excessive LNG charges would sluggish the shift to the environment-friendly gas. The authorities greater than doubled the worth of fuel from home fields to USD 6.1 per million British thermal unit for the six-month interval starting April 1.
“We expect natural gas consumption in India to increase by 5 per cent in FY23 (FY22 estimate: 6.5 per cent), lower from our previous estimate for 7 per cent growth, as the recent sharp increase in domestic gas prices and high LNG prices – both spot and term contracts linked to oil prices – would slow the shift towards natural gas, in our view,” the ranking company stated.
Domestic fuel manufacturing meets roughly half of the present consumption whereas the remaining is imported within the type of liquefied pure fuel (LNG). Fitch stated state fuel utility GAIL (India) Ltd’s earnings from its pure fuel advertising phase are more likely to enhance because of the current rise in spot LNG costs to ranges a lot increased than the long-term contracted LNG from US.”
But sustained excessive LNG costs would sluggish fuel consumption development in India,” it famous. GAIL usually hedges most of its quantity and value threat on near-term deliveries of US LNG to scale back volatility and generate optimistic return. Its provide of LNG from the US is linked to Henry Hub (HH) costs, that are decrease than present spot LNG charges, that are buying and selling above USD 30 per million British thermal items (mmBtu).
“However, the remaining unhedged volume affects the company’s profitability, increasing earnings during periods of high spot LNG prices and leading to losses during times of low spot prices,” it stated. This was evident within the giant leap in GAIL’s fuel advertising phase EBIT to Rs 19.6 billion within the third quarter of the monetary yr ending March 2022 (FY22) amid excessive spot LNG costs.
In comparability, the identical phase had a unfavorable EBIT of Rs 4.3 billion in FY21, when Asian spot LNG costs touched an all-time low of lower than USD 2, as a result of a drop in demand amid the coronavirus pandemic-related lockdowns.
“We expect GAIL’s gas-marketing segment to generate EBIT of Rs 4,000 crore in FY23 (FY22 estimate: Rs 4,300 crore), driven by our expectation of high spot LNG prices in Asia, compared to landed costs for GAIL’s HH-linked contracts, which we forecast to be USD 7-9 per mmBtu, subject to transportation costs,” it stated.
Depending on the spot LNG value differential between Europe and Asia, GAIL additionally has the choice to promote a number of the provides from US in Europe by means of vacation spot swaps. Spot costs in each Europe and Asia are excessive, pushed by efforts by the EU to scale back reliance on Russian imports and thus competing with Asian LNG importers.
Fitch not too long ago revised its title switch facility (TTF) fuel value assumptions to USD 20 per mmBtu for 2022 and USD 10 in 2023, reflecting the affect of geopolitical dangers on demand and provide of hydrocarbons.
“GAIL’s regulated gas transmission segment, which accounts for around 40 per cent of its total EBIT, generates stable returns as it is not affected by volatility in crude oil and LNG prices. However, slower growth in gas consumption would affect the expansion of gas transmission volume and, in turn, the EBIT growth for this segment,” it stated.
The ranking company expects GAIL’s monetary profile to stay commensurate with its credit score profile of ‘BBB’ at the same time as stronger profitability in FY22 and FY23 are anticipated to result in a rise in shareholder returns. GAIL not too long ago stated it plans to purchase again as much as Rs 1,080 crore of shares in April 2022
Source: www.financialexpress.com”