Sector Update | 17 November 2021
Oil & Gas
Oil & Gas
Our Reports
High tide to leave long lasting treasures
Higher spot LNG prices bode well for the future
As a result of a demand-supply mismatch, spot LNG prices rose to USD38/mmBtu from
USD2/mmBtu in May’20.
Our research shows that higher spot LNG prices have resulted in a culmination of more
long term LNG contracts in CY21, thereby raising the Final Investment Decisions (FIDs)
for LNG liquefaction terminals going forward.
Higher number of FIDs would help increase the supply of LNG, thereby reducing the
slope of gas to oil. Favorable gas prices would bode well for India’s Gas sector in the
medium term. Key beneficiaries: GAIL, GUJGA, GUJS, and PLNG.
Higher spot LNG prices, a blessing in disguise
From a low of USD2/mmBtu in May’20, spot LNG prices have risen to
USD38/mmBtu on: a) delays in upcoming LNG terminals due to the COVID-19
pandemic, b) increased demand from China due to the replacement of coal, and
c) supply disruptions, primarily in the US.
On the brighter side, higher spot LNG prices have revived the long-term LNG
market, with the signing of ~32mmtpa of SPAs (sales and purchase agreements)
in CY21 till date as against 22-23mmtpa each in CY20 and CY19.
Higher long-term SPAs are likely to result in more FIDs, which over the next few
years would result in a decline in spot LNG prices (Exhibit
1)
and thus the slope
of gas to oil, thereby favoring consumption of gas over oil.
After remaining stagnant ~70mmscmd for the past five years, domestic gas
available for commercial consumption has risen to ~80mmscmd in the past few
months. Domestic gas production would get a further boost, primarily from RIL
(+12mmscmd) and ONGC’s (+15mmscmd) assets in the KG Basin.
Since domestic gas availability would not suffice the demand of ~220mmscmd
projected in FY27E (Exhibit
5),
import infrastructure would remain key to growth
in gas consumption. We expect India’s available LNG capacity to rise to
66.5mmtpa in the next 3-4 years from 42.5mmtpa.
Key trunk pipelines like Jagdishpur-Haldia, Kochi-Bangalore, Mehsana-Bhatinda,
and North East grid would facilitate better gas penetration.
We conclude that favorable gas prices would benefit domestic consumption,
thereby benefiting the overall gas sector in the country. Key champions on this
theme are GUJGA, GUJS, and GAIL.
GAIL (Buy with a TP of INR200):
In light of commodity prices turning favorable
again (higher spot prices in the medium term, increase in petchem margin in
3QFY22, and better LPG price realization) and the reality of de-risking US Henry
Hub contracts (eight cargoes in 2Q v/s 14 in 1QFY22 sold outside India) coming
to light,
we reiterate GAIL as our top pick in the largecap space.
GUJS (Buy with a TP of INR450):
PNGRB has taken up tariff review of GUJS' HPP
grid to determine the new tariff from FY22 onwards and would adjust it for the
new tax regime. Proposed capex stands at INR45.4b till FY32 on a net block of
India’s gas consumption: higher availability + better infrastructure = growth
Valuation and recommendation
Swarnendu Bhushan - Research Analyst
(Swarnendu.Bhushan@MotilalOswal.com)
Sarfraz Bhimani, CFA - Research Analyst
(Sarfraz.Bhimani@MotilalOswal.com)
17 November 2021
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
1
 Motilal Oswal Financial Services
Oil & Gas
INR53.8b at the end of FY21. The increased capex will augment newer LNG
terminal capacities on the gird and would obviate the need for a tariff cut. We
maintain our Buy rating.
GUJGA (Buy with a TP of INR775):
In the past one year, GUJGA has almost
doubled its price to consumers at Morbi, the last raise being of INR11.7/scm at
the end of Oct’21, after the INR9.5/scm hike in early Oct’21. So far, sales
volumes have declined to 5.5mmscmd currently from 6.4mmscmd in 2QFY22.
Unlike the past, where the company sacrificed its margin to maintain volumes,
the pricing action shows a great resolute towards protecting margin. We
maintain our Buy rating.
Exhibit 1: Spot LNG prices are inversely proportional to the FIDs announced in the
preceding 1-2 years; expect FIDs in CY21 to reduce spot LNG prices in CY22
Total FID Capacity (mtpa)
15.3
Avg Slope (% of Brent)
15.2
25.4
5.5
8.5
CY10
8.1
26.8
CY11
11.6
13.4
13.8
13
14.1
9.2
10.8
10.1
CY12
18.0
CY13
27.6
CY14
20.3
CY15
6.3
CY16
3.4
CY17
21.5
CY18
70.8
CY19
3.3
CY20
59.4
CY21
YTD
Source: IGU, Industry, Reuters, MOFSL
Exhibit 2: LNG exports from the US suffered mainly due to COVID-19 disruption, followed
by hurricane led challenges
10.0
7.5
5.0
2.5
0.0
Pipeline maintenance,
COVID-19 impact
Source: EIA, MOFSL
Exhibit 3: Forward spot LNG curve highlights cool off after winter season demand
Platts LNG JKM (US$/mmBtu)
Slope (% of Brent)
Source: Reuters, MOFSL
17 November 2021
2
 Motilal Oswal Financial Services
Oil & Gas
Long term contracts signed in the last three years
Exhibit 4: Long term contracts signed in the last three years – highest in CY21 on the back of increased spot LNG prices
Buyer
Supplier
CY21 YTD (total contracts signed for 32mmtpa)
Sinopec, China
Venture Global LNG
Unipec (subsidiary of Sinopec), ChinaVenture Global LNG
Polish Oil & Gas
Venture Global LNG
Glencore
Cheniere
ENN Natural Gas, China
Cheniere
Sinopec, China
Qatar Petroleum
CNOOC
Qatar Petroleum
Shell, China
Qatar Petroleum
CPC, Taiwan
Qatar Petroleum
Pakistan
Qatar Petroleum
Vitol, Bangladesh
Qatar Petroleum
Korea Gas, South Korea
Qatar Petroleum
Pavilion Energy, Singapore
bp Singapore
CNOOC, China
Petronas
RWE, Germany
Woodside Petroleum
Vitol, NA
Nigeria LNG
PetroChina
Shell
Sinochem, China
Cheniere
Zhejiang Energy, China
Novatek
Glencore
Novatek
CY20 (total contracts signed for 23.5mmtpa)
Pavilion, Singapore
Qatar Petroleum
Shenergy, China
Centrica, UK
Shell, Kuwait
Qatar Gas
Grain LNG, Europe
Qatar Terminal
Vitol
ADNOC
Santos, Barrosa
Diamond Gas International
Sinopec, China
Qatar Gas
Eni, Europe
Nigeria LNG
BP
Kosmos Energy
Hungary
Shell
Shenergy, China
Petronas
Kuwait Petroleum
Qatar Petroleum
CY19 (total contracts signed for 22mmtpa)
Guanghui, China
Total
Tokyo Gas, Japan
Shell
Uniper
Woodside
Fluxys, Belgium
Qatar Terminal
Repsol
Novatek
Shell
NextDecade
Tokyo Gas/Centrica
Mozambique LNG1
Capco/HK Electric
Shell
Saudi Aramco
Sempra
JERA/CPC
Mozambique LNG1
Quantity
(mmtpa)
4
3.5
2
0.8
0.9
2
3.5
1
1.25
3
1.25
2
0.8
2.2
0.84
0.5
NA
0.9
1
0.5
1.8
0.5
1
Up to 7.2
1.8
1.5
1
1.5
2.5
0.2
1.5
3
0.7
0.5
0.5
7
1
2
2.6
1.2
5
1.6
Duration
(years)
20
NA
20
13
13
10
15
10
15
10
NA
20
10
10
7
10
5
17.5
15
NA
10
15
15
25
6
10
10
10
7
10
12
15
10
10
13
till CY44
15
20
till early CY40s
10
20
17
Linked to
Start year
CY24
CY24
NA
CY23
CY22
CY22
CY22
CY22
CY22
CY22
NA
CY25
CY24
NA
CY25
CY21
NA
CY22
NA
NA
CY23
CY24
CY20
CY25
post CY22
NA
CY22
NA
CY23
CY21
CY22
CY22
NA
CY20
CY21
NA
CY23
NA
CY21
NA
NA
HH
HH
Brent, 10.2%
Brent/Alberta Index
HH
10.5%, Brent
10-10.19%, Brent
HH
Source: Industry, MOFSL
17 November 2021
3
 Motilal Oswal Financial Services
Oil & Gas
Natural gas demand: A well balanced future! (report
link)
Exhibit 5: Incremental sectoral demand as per our demand-supply model
mmscmd
27
22
221
19
53
51
31
66
11
232
19
53
51
42
66
152
19
31
24
31
47
FY21E
20
Fertilizer
City Gas
Petchem
Refining
Total FY27E
Base case
Power
Total inc.
Power
Source: MOFSL
Exhibit 6: In the base case, we assume ~6% gas demand CAGR over FY21-27E
Fertilizer
City Gas
Others
142
23
8 9
71
31
Power
Petchem/Ref
Total (mmscmd)
131
18
24
15
30
44
19
221
152
31
24
31
47
19
53
51
31
66
232
19
53
51
42
66
FY27E including
power demand
Source: MOFSL
FY11
FY16
FY21E
FY27E base case
Decrease in demand over FY11-16 is due to closure of gas production from
KG D6
–
primarily impacting power and sponge iron demand
Exhibit 7: Our domestic gas production assumption
120
105
90
75
60
Domestic gas production (mmscmd)
Assuming 3% decline in production from existing fields
Assuming 6% decline in production from existing fields
Decline due to KG D6
108
97
88
68
Source: MOFSL
17 November 2021
4
 Motilal Oswal Financial Services
Oil & Gas
GUJGA, IGL, MAHGL – financial summary
Exhibit 8: Financial summary of CGD companies
Company
YE March
Gujarat Gas
(Buy with a TP of INR775)
FY21
FY22E
FY23E
98,543
20,878
17,470
17,047
12,755
1,377
44,827
7,700
3,187
4,513
9,039
18.5
65.1
2.0
35.5
10.1
4.7
22.3
0.3
21.2
12.9
32.8
35.1
0.0
0.2
0.1
1,43,490
21,734
17,952
18,325
13,689
1,377
57,146
4,700
10,712
-6,013
11,521
19.9
83.0
2.0
33.1
7.9
3.2
20.9
0.3
15.1
9.5
26.8
32.9
0.0
0.1
-0.1
1,79,741
28,374
24,406
25,011
18,715
1,377
73,990
1,700
21,812
-20,113
15,367
27.2
107.5
2.7
24.2
6.1
2.5
15.5
0.4
15.8
10.4
28.5
36.8
0.0
0.0
-0.3
Indraprastha Gas
(Neutral, with a TP of INR520)
FY21
FY22E
FY23E
49,408
14,830
11,926
13,315
10,057
1,400
58,719
0
11,323
-11,323
6,631
14.4
83.9
3.6
34.6
5.9
6.9
22.9
0.7
30.0
20.4
18.4
17.8
41.2
0.0
-0.2
72,537
19,649
16,399
17,968
13,620
1,400
68,252
0
22,507
-22,507
15,372
19.5
97.5
5.8
25.5
5.1
4.5
16.7
1.2
27.1
18.8
21.5
20.8
61.3
0.0
-0.3
92,981
19,069
15,589
17,281
12,926
1,400
77,301
0
32,461
-32,461
13,923
18.5
110.4
5.5
26.9
4.5
3.4
16.7
1.1
20.5
13.9
17.8
17.3
77.8
0.0
-0.4
Mahanagar Gas
(Buy with a TP of INR1,200)
FY21
FY22E
FY23E
21,525
9,340
7,603
8,336
6,196
988
32,324
168
5,119
-4,951
4,660
62.7
327.2
23.0
16.0
3.1
4.4
10.1
2.3
43.4
28.8
20.0
20.1
43.1
0.0
-0.2
32,629
12,281
10,380
11,115
8,281
988
37,292
168
12,527
-12,359
9,986
83.8
377.5
33.5
11.9
2.7
2.7
7.1
3.4
37.6
25.4
23.8
23.8
58.1
0.0
-0.3
39,499
12,159
10,129
10,899
8,156
988
42,186
168
17,472
-17,304
7,437
82.6
427.1
33.0
12.1
2.3
2.1
6.8
3.3
30.8
20.6
20.5
20.6
57.0
0.0
-0.4
Financials (INR m)
Net Sales
EBITDA
EBIT
PBT
Adj. PAT
Equity
Net Worth
Total Debt
Cash
Net Debt
FCF
EPS
BV
DPS
Per Share (INR)
Valuation Ratios
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
Div. Yield (%)
Key Ratios
EBITDA Margin (%)
Adj. PAT Margin (%)
RoE (%)
RoCE (%)
RoIC (%)
Leverage Ratio
Debt/Equity
Net Debt/Equity
Source: Company, MOFSL
17 November 2021
5
 Motilal Oswal Financial Services
Oil & Gas
GAIL, GUJS, PLNG – financial summary
Exhibit 9: Financial summary of Gas Transmission companies and a gas importer
Company
YE March
GAIL (India)
(Buy with a TP of INR200)
FY21
FY22E
FY23E
5,67,378
64,451
64,451
63,858
48,964
44,404
4,66,112
55,142
13,618
86,546
30,872
10.9
111.7
5.0
13.4
1.3
1.3
11.5
3.4
11.4
8.6
10.8
9.2
10.5
0.1
0.2
6,96,000
1,24,822
1,24,822
1,23,337
93,243
44,404
5,22,057
60,657
44,479
61,200
64,439
20.7
124.1
8.3
7.0
1.2
1.0
5.8
5.7
17.9
13.4
18.9
15.8
22.3
0.1
0.1
7,36,155
96,231
96,231
95,412
71,396
44,404
5,64,895
66,722
30,218
81,527
10,142
15.8
133.6
6.3
9.2
1.1
1.0
7.7
4.3
13.1
9.7
13.1
11.2
13.7
0.1
0.1
Guj. St. Petronet
(Buy with a TP of INR450)
FY21
FY22E
FY23E
17,191
14,694
12,645
12,389
9,255
5,642
75,450
7,499
877
6,622
11,293
16.4
133.8
2.0
19.5
2.4
10.7
12.6
0.6
85.5
53.8
13.0
12.8
30.8
0.1
0.1
17,659
14,537
12,524
13,195
10,061
5,642
84,374
7,499
4,895
2,604
4,474
17.8
149.6
2.0
18.0
2.1
10.2
12.4
0.6
82.3
57.0
12.6
11.8
26.8
0.1
0.0
20,660
17,073
14,813
15,575
11,650
5,642
94,896
7,499
11,050
-3,551
6,520
20.7
168.3
2.0
15.5
1.9
8.4
10.2
0.6
82.6
56.4
13.0
12.3
28.3
0.1
0.0
Petronet LNG
(Buy with a TP of INR300)
FY21
FY22E
FY23E
2,60,229
46,995
39,155
39,677
29,494
15,000
1,16,495
33,447
43,423
-9,977
34,864
19.7
77.7
11.5
11.6
2.9
1.3
7.3
5.0
18.1
11.3
26.1
21.6
41.2
0.3
-0.1
3,93,873
46,052
37,964
38,565
28,384
15,000
1,27,849
26,757
53,002
-26,245
36,459
18.9
85.2
11.4
12.1
2.7
0.8
7.1
5.0
11.7
7.2
23.2
20.2
42.6
0.2
-0.2
4,47,857
51,315
42,853
44,056
32,954
15,000
1,41,030
21,406
60,033
-38,627
35,045
22.0
94.0
13.2
10.4
2.4
0.7
6.2
5.8
11.5
7.4
24.5
22.2
52.6
0.2
-0.3
Financials (INR m)
Net Sales
EBITDA
EBIT
PBT
Adj. PAT
Equity
Net Worth
Total Debt
Cash
Net Debt
FCF
Per Share (INR)
EPS
BV
DPS
Valuation Ratios
P/E (x)
P/BV (x)
EV/Sales (x)
EV/EBITDA (x)
Div. Yield (%)
Key Ratios
EBITDA Margin (%)
Adj. PAT Margin (%)
RoE (%)
RoCE (%)
RoIC (%)
Leverage Ratio
Debt/Equity
Net Debt/Equity
Source: Company, MOFSL
17 November 2021
6
 Motilal Oswal Financial Services
Oil & Gas
Specific Disclosures
1 MOFSL, Research Analyst and/or his relatives does not have financial interest in the subject company, as they do not have equity holdings in the subject company.
2 MOFSL, Research Analyst and/or his relatives do not have actual/beneficial ownership of 1% or more securities in the subject company
3 MOFSL, Research Analyst and/or his relatives have not received compensation/other benefits from the subject company in the past 12 months
4 MOFSL, Research Analyst and/or his relatives do not have material conflict of interest in the subject company at the time of publication of research report
5 Research Analyst has not served as director/officer/employee in the subject company
6 MOFSL has not acted as a manager or co-manager of public offering of securities of the subject company in past 12 months
7 MOFSL has not received compensation for investment banking/ merchant banking/brokerage services from the subject company in the past 12 months
8 MOFSL has not received compensation for other than investment banking/merchant banking/brokerage services from the subject company in the past 12 months
9 MOFSL has not received any compensation or other benefits from third party in connection with the research report
10 MOFSL has not engaged in market making activity for the subject company
Explanation of Investment Rating
Investment Rating
Expected return (over 12-month)
BUY
>=15%
SELL
< - 10%
NEUTRAL
< - 10 % to 15%
UNDER REVIEW
Rating may undergo a change
NOT RATED
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within
following 30 days take appropriate measures to make the recommendation consistent with the investment rating legend.
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intended for distribution only to "Major Institutional Investors" as defined by Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as
"major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment activity to which
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The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S.
registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public
appearances and trading securities held by a research analyst account.
For Singapore
In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets
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inform MOCMSPL.
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 Motilal Oswal Financial Services
Oil & Gas
The associates of MOFSL may have:
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- other potential conflict of interests with respect to any recommendation and other related information and opinions.; however the same shall have no bearing whatsoever on the
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though there might exist an inherent conflict of interest in some of the stocks mentioned in the research report.
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The associates of MOFSL has not received any compensation or other benefits from third party in connection with the research report
Above disclosures include beneficial holdings lying in demat account of MOFSL which are opened for proprietary investments only. While calculating beneficial holdings, It does not
consider demat accounts which are opened in name of MOFSL for other purposes (i.e holding client securities, collaterals, error trades etc.). MOFSL also earns DP income from
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research analyst(s) was, is, or will be directly or indirectly related to the specific recommendations and views expressed by research analyst(s) in this report.
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customers by virtue of their receiving this report.
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in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances.
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the information and opinions contained in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and
should not be treated as endorsement of the views expressed in the report. This information is subject to change without any prior notice. The Company reserves the right to make
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time to time, effect or have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to
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Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263;
Website
www.motilaloswal.com.CIN
no.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road,
Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000.
Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst:
INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579;PMS:INP000006712. Motilal Oswal Asset Management Company
Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth
Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is
a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt.
Ltd. which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group company of MOFSL.
Research & Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no
assurance or guarantee of the returns. Investment in securities market is subject to market risk, read all the related documents carefully before investing. Details of Compliance
Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National
Company Law Tribunal, Mumbai Bench.
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