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Petronet sets sights far - exciting future ahead

Pteronet LNG enjoyed a favourable operating environment during the current year. Domestic gas shortage has helped the state-owned LNG company to record a strong financial performance so far this year. The last two quarters saw it delivering a strong balance sheet. For the September uarter, net profit almost doubled on a year-on- year (y-o-y) basis to `260 crore, higher than the June quarter.

Petronet’s current nameplate capacity is about 10 million tonnes per annum.The company operated at 106 per cent of its nameplate capacity during the September quarter. On the volume front, it did well and the total regassified volume increased by 35 per cent y-o-y to 135.08 trillion British thermal units. This boosted revenue by 75 per cent y-o-y.

But a disproportionate jump in operating costs dented its operating profit margin. It dropped 50 basis points to 8.4 per cent. Depreciation and interest costs, which are the largest cost items for the company, fell 1 per cent and 7 per cent, respectively. This along with a marginal dip in the effective tax rate took net profit higher by 99 per cent to `260.3 crore.

However there are worries in the form of rising LNG prices in the spot market. The current spot LNG prices translate into $15-17 per million BTUs (MMBTU). Nearly 15 per cent of the company's volumes come from spot cargos. In the near term, however, there is no cause for concern. The company's capacity is fully booked for the next three-four months with customers ready to pay the increased prices. The volumes from the long-term contract with RasGas had averaged 90 TBTUs in the first half of FY12, which should move up to 94 in the second half.

The company is setting up another LNG terminal at Kochi with 5 MTPA capacity at a cost of `4,200 crore to be commissioned by December 2012. It is also setting up a second jetty at Dahej at a cost of `900 crore, which will enable it to improve utilisation of its existing capacity by another 20-25%.

AK Balyan, Chief Executive Officer, Petronet, informed media that the construction work at the Kochi terminal was on schedule. “It is expected to be commissioned by the fourth quarter this year. We expect to commission 5 million tonnes in the October-December quarter next year,” he said.

Petronet is also exploring the option of setting up a terminal in the East Coast. Mr Balyan said that by 2015, the company is expected to build a capacity of 25 million tonnes. The company is also in talks with LNG projects in Australia to source supplies for its expansion.

To check attrition and reward performing employees, the company's board has approved the setting up of a trust to purchase shares from the open market for an employee stock options scheme, said RK Garg, its Finance Director.

Along with GAIL, Petronet is scouting for stakes in LNG terminals in the US, where a surge in shale gas output has raised the possibility of greater exports. “We are looking at picking up equity in the terminals to get better pricing of gas. We are talking to some of them with an aim to tie up long-term volumes,” Balyan told media while announcing quarterly results. He said five projects in the US had been identified. Developers of three of them — Cheniere’s Sabine Pass, Freeport LNG and Southern Union's Lake Charles — have applied to the authorities for permission to export gas. Incidentally GAIL is also planning to spend as much as $2 billion on buying overseas LNG assets to meet the growing demand for the natural resource in the country. The government is encouraging state-owned firms to acquire oil and gas assets abroad to meet the country's rising energy demand. Petronet has an exciting time ahead. One should keep reading the lip of Balyan.

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