Petronet LNG crashes 10%, GAIL, Gujarat Gas slip 5% as Qatar halts LNG production; details you need to know

Force majeure means an unforeseen event beyond someone’s control that prevents them from fulfilling a contract.

In simple terms, if something unexpected happens, and it makes it impossible to meet an agreement, a force majeure clause can protect the affected party from penalties.

Qatar supplies about 40% of the nearly 27 million tonnes of liquefied natural gas (LNG) that India imports annually to meet demand across sectors ranging from power generation and fertiliser production to CNG distribution and piped cooking gas networks.

Stocks' performance

Shares of Petronet LNG tumbled as much as 10% on the NSE, while GAIL and Gujarat Gas declined up to 5% each in the early trade.

What Indian companies said

Gas importer Petronet LNG Ltd has informed gas marketers of Qatar halting its liquefied natural gas production after Iran continued to strike Gulf countries in retaliation for Israeli and US strikes against it, they said.

The attacks have also effectively brought oil and LNG shipments through the Strait of Hormuz to a near halt, driving up global energy prices as well as sharply raising war-risk insurance and shipping costs.

Iran controls the Strait -- a vital maritime chokepoint through which roughly 50% of India's crude oil imports and around 54% of its LNG supplies transit. It is the transit for not just LNG from Qatar but also from the UAE.

The PTI report said Petronet has informed its gas offtakers, GAIL (India) Ltd and Indian Oil Corporation (IOC), about a halt in supplies from Qatar. The gas marketers have, in turn, cut supplies to industries while maintaining flow rates for CNG retailing.

The cuts range from 10% to 40%, they said.

Petronet has a long-term contract to buy 8.5 million tonnes per annum of LNG from Qatar. Additionally, it buys Qatari LNG from the spot market as well. Besides Petronet, companies such as IOC have LNG import contracts with the UAE.

PTI, quoting sources, said GAIL and IOCL are looking at tapping the spot or current market to meet the shortfall, but prices have firmed up. LNG in the spot market is now at $25 per million British thermal unit, roughly double the term contract rates.

Likely impact on gas companies’ stocks

Shares of gas distributors and importers like Petronet LNG and GAIL may face downward pressure in the short term due to higher operational costs from costly spot purchases, reduced supply leading to lower volumes sold, and the market fear around geopolitical risks and earnings downgrade risk.

Financial markets typically react negatively to sudden supply shocks and cost pressures on key earnings drivers.

Longer-Term Prospects

• Long-term contracts with Qatar and alternative suppliers are resumed.

• Higher global prices improve the revenue outlook for energy infrastructure owners.

• Indian companies diversify supply sources and renegotiate contracts.

However, prolonged disruptions could adversely affect profit margins, cash flows, and capital expenditure plans — factors that stock markets care about for valuations.

What Citi said

Analysts at Citi said that following the announcement by Qatar to stop LNG production, India’s gas value chain could be at greater near-term risk. Qatar has, over the last few years, been supplying around 40-50% of India’s LNG imports, which could be difficult to entirely replace given the surge that has been seen in global gas prices.

Petronet LNG could face elevated volume risk (Qatar LNG constitutes c.50% of its volumes). As regards GAIL, Citi said that while GAIL’s gas transmission volumes could be at risk, there are partial offsets from portfolio diversification, potentially higher gas trading margins, and likely gains in LPG and petchem.

Among CGDs, Gujarat Gas could be at more risk given its high dependence on both Qatar and spot LNG.

On the oil side, upstream companies like ONGC would benefit from higher oil prices, assuming no windfall tax re-imposition, while OMCs could face margin headwinds.

RIL could stand to gain in O2C from refining margin strength, particularly diesel, Citi added.