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Gujarat Gas facing double whammy of falling oil and rising gas prices

by TLAteam June 23, 2022June 23, 2022
written by TLAteam June 23, 2022June 23, 2022
Gujarat Gas facing double whammy of falling oil and rising gas prices

Gujarat Gas Ltd, India’s largest city gas distributor, is being hit by both falling crude prices and rising gas prices. According to Credit Suisse, the falling spread between gas and crude prices makes alternative fuels such as propane more appealing than gas.

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Gas prices are rising due to a variety of factors, including the closure of the Freeport LNG terminal in the United States, the Nord Stream pipeline, which is scheduled to undergo week-long annual maintenance in mid-July 2022, Norway’s pipeline to the United Kingdom, and the fact that the majority of US gas entering Europe comes from the Gulf of Mexico, which is in the midst of hurricane season, which may disrupt shipping lines, according to Credit Suisse.

Asia Spot Gas prices jumped to $37/mmBtu as against last month’s average prices of around $23/mmBtu. This sudden rise in spot gas prices could impact Gujarat Gas’ volumes and/or margins.

Gujarat Gas’ dependence on imported gas is the highest as it derives most of its revenue by selling gas to industries. Nearly 75% of its total sales volume is from industrials.

At present, Gujarat Gas has a 30%-35% gas sourcing requirement that is dependent on the spot market, while the rest comes from domestic gas and long-term contracts. In the industrial region of Morbi – the main market of Gujarat Gas – industries are shifting to propane as gas has become expensive.

With a further increase in prices, the shift towards propane could accelerate. On the other hand, if Gujarat Gas keeps the gas prices at current levels, then the same could impact margins.

Recently, ETNOW and ETNOW Swadesh had interacted with Manoj Patel, Vice President, Morbi Ceramic Association, where he said that propane continues to remain cheaper by around 11%-12% as compared to gas prices.

Currently, half of the fuel requirement is supplied through Gujarat Gas and the rest is propane, and if the gas price remains high, within the next 2-3 months, 60%-70% of gas volumes could go towards propane, he added.

Motilal Oswal, on the other hand, remains bullish on Gujarat Gas, believing that, in the long run, LNG will be cheaper than LPG, except during the summer season. Furthermore, the increased availability of domestic gas in recent months is likely to help the company reduce its sourcing costs, thereby improving its margins.

AhmedabadAhmedabad cityAhmedabad newsGujarat GasGujarat news
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