Tuesday , September 17 2019

World gas glut risks $4bn bet by Reliance’s Ambani

Bloomberg

A global glut in natural gas is threatening to undermine a $4 billion investment by Reliance Industries Ltd. aimed at boosting profits at the world’s largest oil refining complex.
The project made all the sense in world when energy magnate Mukesh Ambani’s conglomerate announced it in 2012: convert petroleum coke, or petcoke, one of cheapest and dirtiest refinery by-products, into gas needed to power the massive Jamnagar complex on India’s west coast. Then it hit about three years of delays, and global gas markets crashed amid a growing supplies of liquefied cargoes from the US, Australia and Russia.
The 10 synthetic gasifiers that make up the project are now finally commissioned. But the imported LNG they’re meant to displace has fallen from about $15 per million British thermal units in 2012 to less than $5.
And that price slump reduced the project’s viability, according to a person with knowledge of the company’s finances.
Reliance predicted in 2014 that the project would boost Jamnagar’s refining margins by as much as $2 a barrel. Now, Mumbai-based brokerage Centrum Broking Ltd. sees an uplift of about $1.30 to $1.50 a barrel by 2021-2022 fiscal year, according to a July 21 report by analysts Probal Sen, Akshay Mane.
“It’s not most conducive environment to bring petcoke project on stream,” said Somshankar Sinha, head of India equity research at Jefferies Financial Group Inc. “The LNG surplus has caused prices to fall much more than the usual decline in summer months,” the Mumbai-based analyst added. Jefferies said it expects a full ramp-up of Reliance’s project in financial year 2021.

Project Status
The gasifiers, originally scheduled to begin operations in 2016, are now in the final stages of being stabilised and integrated with other facilities, with an expected increase to full capacity in March. Reliance said the units are still profitable at current LNG prices and it will cut down on imports of fuel when they come online.
With the plant still not fully operational, the company is still importing LNG, recently picking up several cargoes for delivery between July and October. Meanwhile, it has also been selling petcoke, according to a trader who distributes the product.
Reliance spokesman Tushar Pania didn’t respond to an email seeking comment. The company’s share price fell for a second day on Wednesday, closing 0.4% lower at 1,270.80 rupees in Mumbai as the benchmark S&P BSE Sensex ended 0.7% lower.

Refining Returns
A recovery in LNG prices “should aid economics for the gasifier,” according to Centrum Broking, even as LNG prices are set to stay low due to surging supplies from producers such as the US shale drillers.
Based on the forward curve for Asia’s dominant LNG benchmark for supplies in Japan and South Korea, the super-chilled gas is priced at between $5.50 and $8 per million Btu from 2020 to 2023. Prompt LNG prices are pegged at around $4.70 per MMBtu.
Low LNG spot prices could encourage Reliance Industries to take more spot volumes in the coming quarters, although the company won’t shift its long-term strategy away from eliminating petcoke residue, said Senthil Kumaran, a Singapore-based analyst at industry consultant FGE.
The payoffs from Reliance’s investment in gasifiers, however, “won’t be as rich as it was originally thought,” he added.

About Admin

Check Also

Kenya wins delay in feud with Somalia over oil-rich region

Bloomberg The United Nations International Court of Justice granted Kenya’s request to postpone a hearing ...

Leave a Reply

Your email address will not be published. Required fields are marked *