RasGas-Petronet LNG deal to benefit fertiliser, power companies

January 8, 2016

( ) Power and fertiliser companies  are likely to  benefit from the RasGas and Petronet LNG deal, which will help them buy more gas from the state-run company and boost their margins as the fuel becomes cheaper.Petronet LNG reworked its long-term contract with RasGas on December 30 to halve the price of the imported fuel and waive a penalty of Rs 12,000 crore for lifting lower volumes than contracted. The price of gas is expected to decline to $6-7 per million British thermal units from $12 per million Btu.Brokerages said gas transmission and marketing companies would gain from the lower prices, which would boost demand from power and fertiliser units that had avoided taking supplies from Petronet LNG because the long-term contracted gas was one of the most expensive in the world, substantially higher than spot prices.According to a report by  rating agency ICRA, “The major impact on the fertiliser industry of the decrease in RasGas LNG prices would be in the form of decrease in subsidy receivables and working capital requirements. Further, it will lead to a decrease in interest cost due to lower working capital intensity in case of delays in subsidy payments, thereby improving net profitability. It will also favourably impact the profitability of revamped urea capacities earning import parity pricing-based pricing and those of non-urea fertilisers under nutrientbased subsidy such as ammonium nitrophosphate, which use a certain proportion of long-term R-LNG.”  

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