How shortage of gas is impacting GAIL?

New Delhi: GAIL (India) Ltd, India’s largest gas transmission company – reported a strong set of numbers in Q1FY23, but concerns weigh on the company as it deals with the gas shortages. GAIL has a total imported gas portfolio of 14 MMTPA out of which 2.5 MMTPA is contracted with Gazprom.

A total of 8 cargoes have not been supplied as yet by Gazprom out of a total of 36 contracted cargoes due for the year. This is expected to impact GAIL’s financials as its dependence on the spot market increases.

In the spot market gas prices have surged to over $44 per million British thermal units – the highest at least since March 2015. GAIL is taking multiple steps to address the shortfall, however, this will still impact three out of the four key divisions.

The transmission segment would be impacted as the lower volume will flow through the pipeline because of reduced availability. The marketing/trading segment will be impacted as there will be lower volumes available for sale. And, the petrochemical segment will be impacted by a lower utilisation level. Due to lower gas availability, the company will restrict supply to the petrochemical plant to make up for supply to other customers.

The company expects marketing and transmission volumes to be down by 6 MMSCMD and 7.5 MMSCMD respectively, while the petrochemical plant will operate at ~50% utilisation levels. GAIL has undertaken various measures including supplying volumes at take-or-pay levels, cutting pet-chem segment consumption, booking ships to get delivery of unallocated cargoes from the US market, etc. in-order to meet the deficit in volumes.

Lower gas availability and higher gas prices are also impacting city gas distributors. GAIL supplies gas to CGDs and is currently blending spot gas volumes at a proportion of around 12%-13%, which has led to higher gas prices for CGDs. GAIL is exploring the market to source more gas supplies but hasn't found much interest from sellers.