MOSL: PETRONET LNG (Buy)-Snowball effect-Huge scope for small scale LNG in India

Petronet LNG: Snowball effect; Huge scope for small scale LNG in India

(PLNG IN, Mkt Cap USD5.0b, CMP INR230, TP INR317, 38% Upside, Buy)

• While there is little doubt on the near-term growth in LNG consumption, the medium-long term poses a risk, considering that domestic gas production is expected to rise amidst upcoming LNG terminals.
• Just as a small snowball keeps adding snow as it rolls down a snow surface, we identify small-scale LNG (ssLNG) opportunities in India, which would be able to absorb what seems like a flurry of upcoming LNG capacities.
• ssLNG is defined as direct sale of LNG in liquid state to the consumer rather than going through regasification. We believe ssLNG offers immense potential, with a market of 7-10mmt by 2025. This could help absorb possible LNG capacity addition, despite 10.5% growth in domestic gas production during FY18-22.
• We reiterate Buy, with a target price of INR317.

 Lack of infrastructure in India has held back natural gas consumption

• Lack of sufficient domestic gas production, import terminals, natural gas pipeline infrastructure and policy initiatives have been a big bottleneck, resulting in only 6.1% CAGR in gas consumption during FY90-18E.
• Comparatively, China has witnessed better infrastructure development. More importantly, focused policy initiatives have resulted in higher gas production, construction of cross-country gas pipelines as well as LNG import capacity rising ~6.5x during 2008-17 to 51.6mmtpa. India has grown only 2.2x.
• As a result of increased focus, China has seen gas consumption CAGR of 10.1% during FY90-FY18E, almost 1.7x that of India. It offers immense learning for India, which wants to triple market share of natural gas in its primary energy mix to 20% by 2025.