GAIL, Gujarat Gas And Petronet LNG Fall As Jefferies Flags Price Pressure

Shares of GAIL (India) Ltd. fell even as Jefferies picked it as the key beneficiary of rising liquefied natural gas prices. Gujarat Gas Ltd. and Petronet LNG Ltd. declined.

The research firm expects city gas distribution companies to face pressure due to elevated LNG prices and it could lead to a reduction in industrial volumes.

The tightening of global LNG market could boost petchem profitability aiding GAIL, while Petronet LNG could be hurt due to elevated prices, Jefferies said in a report. The downside in Petronet LNG's earnings could be cushioned due to the fact that 95% of the Dahej facility's capacity is pre-booked.

Over the last two days, global LNG prices have risen 60% amid gas shortage in key EU countries. Since Russia invaded Ukraine, the LNG supply loss to the EU has been nearly 21%. Prices are likely to remain elevated through FY22-23E, according to the Jefferies report.

Gujarat Gas is insulated for the time being as it has tied up adequate spot till August. But the spot prices will increase blended cost of gas for the industrial segment. After September, the current spot prices will increase sharply leading to a cut in volumes, according to the brokerage.

Jefferies' view on GAIL being a beneficiary of the tightening LNG markets is similar to Morgan Stanley's assessment.

"The decline in Henry hub gas prices, due to local export capacity outage for the next three months, should be positive for GAIL as it expands marketing margins for 40% of the portfolio gas it imports from the U.S," the Morgan Stanley report said.

Shares of GAIL fell over 1%, while Gujarat Gas and Petronet LNG lost 2.83% and 4.85%, respectively