- India faces a critical LNG supply gap as Qatar halts its production impacting imports
- Qatar supplies 40-50% of India’s LNG, making replacement challenging amid rising gas prices
- Petronet LNG and Gujarat Gas are highly vulnerable due to reliance on Qatari LNG supplies
As the Middle East tension continues to flare up, there has been much anxiety over global oil prices and crude volatility, with India being one of the major countries impacted due to its reliance on imports. However, a Citi note has recently pointed out that India must soon start thinking about gas, as it will likely have a bigger impact than oil, in the midst of the ongoing conflict.
In its latest note, Citi has noted that following the announcement by Qatar to halt liquefied natural gas (LNG) production, India faces the risk of a critical supply gap. Qatar has historically supplied 40-50% of India's LNG imports. The brokerage firm notes that entirely replacing these volumes will be exceptionally challenging given the sharp surge in global gas prices.
Who Will Get Impacted?
The Citi note went on to highlight the key Indian energy stocks that may be impacted due to the potential gas supply glut. Petronet LNG, for one, faces elevated volume risks, as Qatari LNG constitutes approximately half of its total volumes.
State-owned GAIL India's gas transmission volumes are also at risk, although the Citi note states that GAIL has mitigating factors, such as portfolio diversification, potentially higher gas trading margins and likely in liquefied petroleum gas (LPG) and petrochemicals.
As far as city gas distributors are concerned, Gujarat Gas is considered a high-risk stock. The company is particularly vulnerable due to its significant dependence on Qatari supplies and spot LNG, which could be subject to extreme price volatility.
On the other hand, the oil sector presents a mixed outlook. Upstream exploration companies like ONGC are positioned to benefit frmo higher oil prices, provided the government does not reimpose windfall taxes. However, state-run oil marketing companies could face margin headwinds as crude costs rise.
Reliance Industries stands to benefit as well, with the conglomerate likely to see gains in its oil-to-chemicals segments, with growth being driven by overarching strengnth by refining margins, particularly for diesel.
Citi estimates that short-term LNG supply disruption may have significant ramifications, potentially pushing prices to $14-$18 per metric million British thermal units (mmbtu), whereas a prolonged three-month disruption could lift prices to $30 per mmbtu.
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