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MOSL: PETRONET LNG (Buy)-Latent potential could be immense

Petronet LNG: Latent potential could be immense

(PLNG IN, Mkt Cap USD4.6b, CMP INR217, TP INR311, 43% Upside, Buy)

 

• Increased focus of the Chinese government on gas availability, construction of distribution infrastructure and suitable policies aiding consumption helped Chinese gas consumption to grow at CAGR of 16% during 2001-10 and another 10% during 2011-18.
• After a long gap, large trunk pipelines are being constructed, which along with ninth and tenth round of City Gas Distribution (CGD) bidding, should increase the penetration of gas to 72%.
• Increase in gas availability and distribution infrastructure, along with suppressed LNG prices should aid Petronet. 

China offers a clue

Even after battling a severe pollution problem, Chinese gas consumption grew at a CAGR of 16% during 2001-2010 and another 10% during 2011-18. China introduced favorable policies in the last decade, which supported (a) domestic production, (b) imports, (c) growth in transmission and distribution pipelines, and (d) consumption. This led to China doubling its market share of natural gas in the primary energy mix to 6.6%. But, during the same period, share of natural gas in the primary energy mix slid from 8.9% to 6.2%.

Lack of availability and infrastructure stumbling blocks for India

After hovering at 78-80mmscmd during 2003-09, India’s domestic gas production spurted in 2009 when KG-DWN-98/3 commenced production, taking the total to a peak of 131mmscmd in 2010. However, due to problems at KG-DWN-98/3 and lack of commensurate growth elsewhere, it resulted in domestic gas production declining to ~70mmscmd currently. Lack of gas availability (domestic + imports) amidst lackluster growth in pipeline infrastructure resulted in India witnessing a decline of 2% in its gas consumption during 2011-18 v/s +10% for China.