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● GAIL held its annual investors meet in Mumbai on Thursday. We
highlight the key takeaways in this note.
● GAIL expects gas transmission volumes to average 135 mmscmd
in FY12 (118 in FY11, 120 in 4Q FY11, and a target of 118 set in
the MoU with the government). If volumes grow linearly, FY12 exit
rates will have to be c.150 mmscmd. Alternatively, GAIL volumes
must hit 135 mmscmd fairly soon. None of it seems likely.
● We think a large part of this near-term optimism is based on GAIL
using the ‘official’ estimate of KG D6 production—80 mmscmd by
March 2012. This is unlikely, as RIL and DGH have only recently
begun talking about steps needed to grow volumes. GAIL is also
perhaps counting on volumes from the Dabhol LNG, new
domestic fields and LNG.
● While each of these volume drivers is individually likely, they may
not happen in FY12. GAIL capex forecasts (US$6.3 bn over the
next three years) continue to include projects we do not
incorporate yet. We will review our model as the FY11 annual
report publishes.
GAIL organised its annual analyst meet in Mumbai on Thursday. We
highlight the key takeaways in this note.
Very optimistic on FY12 volume forecast
GAIL forecasts FY12 gas transmission volume can average 135
mmscmd; and suggested volumes currently are c.123 mmscmd. We
note: (1) FY11 volumes averaged 118 mmscmd, (2) 4Q FY11
averaged 120 mmscmd and (3) GAIL has signed an MoU with the
government targeting 118 mmscmd of gas transmission in FY12. If
volumes grow linearly hereon, GAIL will have to exit FY12 at 147
mmscmd (a growth of c.27 mmscmd, equivalent to 7 MTPA of LNG
YoY). Alternatively, GAIL will have to quickly ramp up to 135 mmscmd
levels. Given the pressures on KG D6 output, neither of these
scenarios seems likely.
Based on some aggressive assumptions
While the company has not provided details, we suspect they base
this large volume growth expectation on: (1) output from new domestic
fields (ONGC guides for low, single digit mmscmd growth in FY12), (2)
more LNG (PLNG was operating at c.100% utilisation at Dahej last
quarter; the ability to do more may be limited in the near term) and (3)
KG D6 gas volume growth – based on ‘official’ DGH estimates. The
latter seems very unlikely given RIL and the DGH have only now
started discussions on the field, and the little physical activity needed
to grow output may be some time away. We model GAIL gas
transmission at 123 mmscmd in FY12.
GAIL also looking to start Dabhol LNG terminal in 2011
GAIL may also be counting on gas volumes from the Dabhol LNG
terminal (nameplate capacity of 5 MTPA). GAIL expects to award and
complete the dredging work post the monsoon season, and import the
first cargo by December 2011. Without the breakwater facility (yet to
be contracted, and can take three years to build), the terminal can
operate at an annual rate of 30–40%. While this might be theoretically
possible, we note the company has previously missed timelines for
Dabhol LNG.
We think that each of the underlying gas volume growth drivers are
likely to actually materialise, just not in FY12. GAIL’s aggression in
forecasts is more a timing issue than one on actual numbers.
Large total capex plans, and big in ‘other’ category
GAIL forecasts total capex of Rs286 bn (US$6.3bn) over the next
three years; 39% of this is to be spent on gas pipelines, 29% on
petchem expansions, and a large 25% ($1.6 bn) on ‘others’. The latter
includes GAIL’s plans to build c.300 MW of renewable energy
generation (including the near-term forecast of 120 MW of wind
power) and 250 MW of conventional power generation (most likely
based on gas) in Maharashtra. GAIL is also looking to acquire a
producing/near-production gas asset globally. This is much more than
we forecast, and if implemented, can lead to GAIL turning net debt in
the short term.
Other key points
GAIL expects to import at least one LNG cargo a month for the rest of
CY11. The company also suggests that it is now receiving ‘better’
offers for long-term LNG contracts from global suppliers, and that it
may be close to signing one such deal.
GAIL believes there is enough rich gas available (c.18 mmscmd
available at Vijaipur) to support its petchem volume expansion at Pata.
GAIL believes that the expansion can earn c.15% IRR even if input
gas cost US$13/mmbtu.
GAIL is also hopeful of progress on the transnational TAPI pipeline,
where it suggests most negotiations (pricing, framework agreements)
are well-progressed. The project may deliver c.45 mmscmd by 2017.
The BCPL cracker (2.2 KTA of ethylene; GAIL owns 70%) has seen
large cost increases (c.$800mn). GAIL hopes for additional
government subsidy for the project, and expects the project can
commission by March 2013.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
● GAIL held its annual investors meet in Mumbai on Thursday. We
highlight the key takeaways in this note.
● GAIL expects gas transmission volumes to average 135 mmscmd
in FY12 (118 in FY11, 120 in 4Q FY11, and a target of 118 set in
the MoU with the government). If volumes grow linearly, FY12 exit
rates will have to be c.150 mmscmd. Alternatively, GAIL volumes
must hit 135 mmscmd fairly soon. None of it seems likely.
● We think a large part of this near-term optimism is based on GAIL
using the ‘official’ estimate of KG D6 production—80 mmscmd by
March 2012. This is unlikely, as RIL and DGH have only recently
begun talking about steps needed to grow volumes. GAIL is also
perhaps counting on volumes from the Dabhol LNG, new
domestic fields and LNG.
● While each of these volume drivers is individually likely, they may
not happen in FY12. GAIL capex forecasts (US$6.3 bn over the
next three years) continue to include projects we do not
incorporate yet. We will review our model as the FY11 annual
report publishes.
GAIL organised its annual analyst meet in Mumbai on Thursday. We
highlight the key takeaways in this note.
Very optimistic on FY12 volume forecast
GAIL forecasts FY12 gas transmission volume can average 135
mmscmd; and suggested volumes currently are c.123 mmscmd. We
note: (1) FY11 volumes averaged 118 mmscmd, (2) 4Q FY11
averaged 120 mmscmd and (3) GAIL has signed an MoU with the
government targeting 118 mmscmd of gas transmission in FY12. If
volumes grow linearly hereon, GAIL will have to exit FY12 at 147
mmscmd (a growth of c.27 mmscmd, equivalent to 7 MTPA of LNG
YoY). Alternatively, GAIL will have to quickly ramp up to 135 mmscmd
levels. Given the pressures on KG D6 output, neither of these
scenarios seems likely.
Based on some aggressive assumptions
While the company has not provided details, we suspect they base
this large volume growth expectation on: (1) output from new domestic
fields (ONGC guides for low, single digit mmscmd growth in FY12), (2)
more LNG (PLNG was operating at c.100% utilisation at Dahej last
quarter; the ability to do more may be limited in the near term) and (3)
KG D6 gas volume growth – based on ‘official’ DGH estimates. The
latter seems very unlikely given RIL and the DGH have only now
started discussions on the field, and the little physical activity needed
to grow output may be some time away. We model GAIL gas
transmission at 123 mmscmd in FY12.
GAIL also looking to start Dabhol LNG terminal in 2011
GAIL may also be counting on gas volumes from the Dabhol LNG
terminal (nameplate capacity of 5 MTPA). GAIL expects to award and
complete the dredging work post the monsoon season, and import the
first cargo by December 2011. Without the breakwater facility (yet to
be contracted, and can take three years to build), the terminal can
operate at an annual rate of 30–40%. While this might be theoretically
possible, we note the company has previously missed timelines for
Dabhol LNG.
We think that each of the underlying gas volume growth drivers are
likely to actually materialise, just not in FY12. GAIL’s aggression in
forecasts is more a timing issue than one on actual numbers.
Large total capex plans, and big in ‘other’ category
GAIL forecasts total capex of Rs286 bn (US$6.3bn) over the next
three years; 39% of this is to be spent on gas pipelines, 29% on
petchem expansions, and a large 25% ($1.6 bn) on ‘others’. The latter
includes GAIL’s plans to build c.300 MW of renewable energy
generation (including the near-term forecast of 120 MW of wind
power) and 250 MW of conventional power generation (most likely
based on gas) in Maharashtra. GAIL is also looking to acquire a
producing/near-production gas asset globally. This is much more than
we forecast, and if implemented, can lead to GAIL turning net debt in
the short term.
Other key points
GAIL expects to import at least one LNG cargo a month for the rest of
CY11. The company also suggests that it is now receiving ‘better’
offers for long-term LNG contracts from global suppliers, and that it
may be close to signing one such deal.
GAIL believes there is enough rich gas available (c.18 mmscmd
available at Vijaipur) to support its petchem volume expansion at Pata.
GAIL believes that the expansion can earn c.15% IRR even if input
gas cost US$13/mmbtu.
GAIL is also hopeful of progress on the transnational TAPI pipeline,
where it suggests most negotiations (pricing, framework agreements)
are well-progressed. The project may deliver c.45 mmscmd by 2017.
The BCPL cracker (2.2 KTA of ethylene; GAIL owns 70%) has seen
large cost increases (c.$800mn). GAIL hopes for additional
government subsidy for the project, and expects the project can
commission by March 2013.
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