Nov 28, 2007|
GAIL: Volumes in line
Panna-Mukta-Tapti (PMT) rights
GAIL has recently bagged the rights to market 17 million standard cubic meters per day (MMSCMD) of natural gas produced from the PMT fields. It may be noted that GAIL currently delivers about 5 MMSCMD from the PMT fields. So far, the company was not entitled to any marketing margin. It will now be able to charge a marketing margin of US $ 0.12 per million British thermal unit on the entire output. The market margin will enhance the bottomline by about Rs 5.6 bn annually (1.12 bn as marketing margin and Rs 4.50 bn as transportation tariff).
How does it impact GAIL?GAIL's transmitted volumes in the past
GAIL currently transmits (travels through the pipeline) around 80 MMSCMD of gas out of which 68 MMSCMD is traded (purchased and sold on its own) and balance 12MMSCMD is on other's behalf.
|Volume transmitted (MMSCMD)
|Capacity utilization of major pipelines
We expect robust growth in transmission volumes by FY10 due to the demand for natural gas in India, supply from the recent spate of discoveries and the in-place infrastructure of GAIL to bridge the demand-supply. Infact, deliveries from the KG basin fields alone are expected to add around 40 MMSCMD by FY10. As the gas story unfolds, there will be a mix of positive and negative surprises in the estimations due to the inherent risk in execution. If the recent development is a positive one, an example of negative surprise would be RIL planning to lay a pan India (8,700 km) grid of natural gas pipelines over a period of 5 to 7 years. Hence, the additional 12 MMSCMD of PMT gas provides a margin of safety in volumes expectations rather than necessitating an upward revision of our estimates for the company. As such, we stick with our current projections on the stock from an FY10 perspective.
Conclusion Our recommendation remains unchanged.
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