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India Natural Gas - Industry Flash

KG Gas – GAIL, GSPL to Benefit from Initial Allocation

* KG gas – prospective allocation — Recent press reports (Financial Express) have enlisted the gas-based urea units that would be allocated ~14mmscmd of initial KG gas. The press (Hindu) also indicates that commercial sales will commence by Apr at a rate of 15-20mmscmd and ramp up to 40 by Jul/Aug.

* Who gets what — As per the press reports, RCF has been allocated 3.0mmscmd of initial KG gas, followed by Kribhco and IFFCO (2.3 each), Nagarjuna Fert (1.5), Chambal (1.1), and others (see Figure 1 for breakdown).

* GAIL a beneficiary — Of the 13.7mmscmd of allocated fertilizer vols, 7.0 is expected to flow through GAIL’s core HBJ/DVPL/GREP pipelines and another 4.6 through its pipelines in AP, Mah. Coupled with 1.4 of vols allocated to Dabhol, our forecast of 17mmscmd of KG vols for GAIL in FY10E looks reasonable. Further, we assume just 2mmscmd flowing through HBJ and 15 through non-HBJ pipelines. The better-than-forecast mix of HBJ:non-HBJ vols provides cushion to our earnings, given HBJ tariffs are higher than non-HBJ.

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