Sunday, 22 May 2011

Gas subsidy cuts to strengthen PTG by allowing Petronas to import more gas

Petronas Gas Bhd (PTG) is expected to be the indirect beneficiary of gas subsidy cuts given that it would make it more palatable for Petronas to import liquefied natural gas (LNG) via PTG’s terminal for transmission around Peninsular Malaysia.

“While PTG does not directly benefit from lower gas subsidies or higher gas prices, the potential cut in gas subsidies next week does mean that the Government is resuming its subsidy review programme which should eventually see gas subsidies cut completely within some five to seven years,” said OSK Research Sdn Bhd (OSK Research) in a research note yesterday.

The research firm expected the increase in Petronas’s gas share price of 2.3 per cent over the last two days higher than average volume to be attributed by tPetronas Refinery and Petrochemical Integrated Development (Rapid) project in Pengerang, Johore and rumours of a cut in gas subsidies in June.

With regards to the Rapid project, Prime Minister, Datuk Seri Najib Tun Razak indicated that there could be another LNG regasification terminal in Pengerang in addition to the three million tonne per annum terminal in Melaka. With the due diligence to be completed by year end, construction could begin in 2012 with completion by 2014.

“Assuming it would be another three million tonne plant, this could add a further 500 million standard cubic feet per day (mmscfd) of gas available for PTG to transport in addition to the 2890mmscfd that would already be available then or a 17 per cent increase in gas volume,” OSK Research further added.

Analysts noted that in addition to more Gas Transportation revenues, PTG would likely be able to book in Regasification revenues for ownership of the LNG terminal.

“We have introduced the financial year 2011 (FY11) accumulated forecasts which are for the nine month financial year between April till December 2011 due to a change in Petronas’ financial year.”

Analysts had raised slightly their gas volumes going forward given indication that Petronas would max out the 500mmscfd capacity of the Melaka LNG terminal.

OSK Research raised its terminal value in calculating PTG’s discounted cash flow value from 2.3 per cent to 2.5 per cent given that there were more potential LNG terminals at Pengerang and elsewhere.

This raised OSK Research’s fair value of PTG to RM13.82 from the current price of RM13.56. - Borneo Post