Mundra LNG Terminal Attracts Huge Interest

Falling gas production and skyrocketing demand for gas in the country has increased interest in Gujarat State Petronet’s (GSPC) proposed LNG terminal in Mundra. This project has been eyed by companies like Reliance Industries, GAIL, Petronet and Torrent Power. The reasons for the interest may vary, but the common thread is to gain access to the gas for captive use.

The Mundra terminal was originally proposed by the Gujarat government in 2008, but was delayed. As per the original plans, the project was to be funded by mix of debt and equity in a ratio of 2:1. GSPC was to hold 50% stake, while Essar Power and Adani Enterprises were to hold 25% equity stake each. Essar Power has pulled out of this plan, and now, the state government is looking for an entity that can hold the remaining 25% equity stake. The bidding process for the same ended yesterday (April 8, 2013).

The project is worth Rs 4500-5000 crore, of which about Rs 1500-1650 crore would be funded through equity. Of this amount, 75% will be held by GSPC and Adani Enterprises. The terminal will have a capacity to re-gasify 5 million tonnes per annum (MTPA).

As per media reports, Reliance Industries has expressed interest in picking up an equity stake in this project through its Joint Venture with BP. The company has already been scouting for a location in Gujarat to set up a LNG terminal of 5 MTPA capacity, with half of it for captive consumption. It if wins the bid for the Mundra LNG terminal, it may have to re-consider its original plan.

State-owned firm GAIL is also in dire need of gas supplies due to a fall in gas production from the KG-D6 basin. The company is looking to make most of its huge pipeline network throughout the country, and if it wins the bid for the Mundra terminal, it will be a big positive. The company has recently commissioned a 5 MTPA Dabhol terminal in Maharashtra, whose capacity it plans to increase to 8 MTPA by 2016.

Petronet LNG currently has a terminal in Dahej in Gujarat, and intends to take this to 10 MTPA capacity in the next 2 years. Besides, it also is in the process of setting up a terminal in Kochi, Kerala.

Torrent Power, which currently has 100 MW gas-fired power plants and expects to add about 1600 MW gas-based capacity soon, will be very keen to acquire equity shares in the Mundra LNG terminal. The company has already seen a drop in its financial performance due to a decline in gas supply, and getting a stake in the terminal will indeed be a lifeline for the company.

Whoever wins the bid will benefit from the project. We opine that Torrent Power, if successful, will emerge as the top beneficiary. In any case, the emergence of the top companies as potential acquirers of stake is definitely a positive for investor sentiment on the oil & gas sector.