Visit http://indiaer.blogspot.com/ for complete details Building pipelines versus creating value. We believe it is too early to accord value to
the two new pipelines awarded by the regulator to GSPL—(1) Mallavaram-Vijapur-
Bhilwara pipeline and (2) Mehsana-Bhatinda pipeline. We note (1) limited visibility on
incremental gas supply to feed the new pipelines and (2) likely low capacity utilization in
other gas pipelines competing with the proposed new pipelines. We retain our SELL
rating on GSPL with a 12-month target price of `83.
Award of two new pipelines to GSPL
We are not overly enthused by the award of two cross-country pipelines by the Petroleum and
Natural Gas Regulatory Board (PNGRB) to a consortium of GSPL (52%), IOCL (26%), BPCL (11%)
and HPCL (11%)—(1) Mallavaram-Vijapur-Bhilwara (MVB) pipeline and (2) Mehsana-Bhatinda (MB)
pipeline. We do not expect meaningful value creation in the aforementioned new pipelines given
(1) uncertainty regarding sources of gas for these pipelines and (2) presence of existing gas
pipeline network and proposed large capacity addition by other players.
Tardy development of sector with slippages in gas supply and surfeit of transmission infrastructure
We are perplexed by the euphoria in the gas sector despite tardy progress in several key upstream
projects, which are key to development of the sector. We have long highlighted that demand,
supply and corresponding infrastructure need to move in tandem for a proper development of the
sector. However, the sector has seen (1) significant delays in several key upstream projects and
(2) slower-than-expected ramp-up in RIL’s KG D-6 block.
Existing pipeline infrastructure capable of meeting incremental supply over the next 5-6 years
We expect incremental gas supply of ~65-75 mcm/d over the next 5-6 years led by (1) higher gas
production from KG D-6 block, (2) higher LNG imports, (3) start of production from GSPC’s Deen
Dayal block and (4) likely start of production from RIL’s NEC-25 block. We highlight that the
existing pipeline infrastructure (including pipelines under construction) is sufficient for the
incremental supply. Exhibit 1 gives the existing and proposed gas pipeline network in India.
Regulations provide for completion of pipelines in three years
We highlight that the regulations provide for completion of the pipeline within three years from
the award. This would entail completion of both these pipelines by FY2014E. Given the gas supply
situation, we suspect these pipelines may not have sizable gas transmission volumes for several
years. GSPL’s proposed pipelines will largely duplicate extant pipelines in the country and may
suffer from low capacity utilization in the first years of operation.
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