Russian gas supply snag leads to GAIL profit tumbling 46%

GAIL (India) Ltd, the nation's largest gas distributor, on Friday reported a 46 per cent drop in its September quarter net profit as supply disruptions from a former unit of Russian energy giant Gazprom hurt business.

Net profit stood at Rs 1,537.07 crore in the July-September quarter compared to Rs 2,862.95 crore in the same period a year back, according to a stock exchange filing of the company.

The profit for the firm that transports and sells natural gas to users like fertiliser plants and CNG retailers was sequentially down at 47.2 per cent from Rs 2,915.19 crore profit in the April-June quarter.

At an investor call, GAIL Director (Finance) RK Jain said Gazprom Marketing and Trading Singapore (GMTS), now a subsidiary of Gazprom Germania, stopped delivery of LNG cargoes to the company under a long-term contract in late May.

So far, GMTS has defaulted on the supply of 17 cargoes or shiploads, including 13 in the second quarter (July-September), he said.

To mitigate disruption in the supply of 8.5-9 million standard cubic meters per day or roughly 20 per cent of all gas supply, GAIL had to cut supplies to fertiliser plants as well as some industrial consumers.

It also reduced the gas supply of its Pata petrochemical plant in Uttar Pradesh by as much as 3 mmscmd, leading to the plant operating currently at just 40 per cent of the capacity, he noted.

This reduced capacity and lower petrochemical prices hurt earnings from the business.

GAIL has a 20-year pact with GMTS for sourcing an average of 2.5 million tonnes of LNG annually.

Gazprom gave up the ownership of Gazprom Germania after western sanctions over Russia's invasion of Ukraine. Thereafter, GMTS could not source LNG from Russia and snapped supplies to GAIL.

Jain said GAIL made up some of the volumes lost by buying LNG from the spot market, where prices are higher than the long-term deal.

This hurt marketing margins.

GAIL earlier this week signed a deal with Abu Dhabi National Oil Co (ADNOC) to explore short and long-term LNG supplies.

GAIL's mainstay natural gas marketing business saw revenues double but profitability declined 66 per cent as higher gas prices, resulting from a global surge in energy rates following Russia's invasion of Ukraine, hurt margins.

It posted a pre-tax loss of Rs 346.22 crore in the petrochemical business in Q2 compared to Rs 363.29 crore a year back and Rs 35.16 crore in April-June 2022.

In the regulatory filing, GAIL said there was a disruption in liquefied natural gas (LNG) supplies by a former unit of Russia's Gazprom.

"The company has taken various measures which include reduction of supplies to downstream customers and its internal consumption at Pata petrochemical plant (in Uttar Pradesh) by reducing petrochemical production to have a sustainable operation," it added.

Pata plant uses natural gas to make low-density polyethylene that is used to make plastic toys, water pipes and general packaging material, among others.

To tie over with the gas shortage, GAIL advanced maintenance shutdown of some units at the 8,10,000 tonne-a-year plant.

Profits from the gas transmission business also fell 32 per cent to Rs 709.59 crore, according to the filing.

While EBITDA was down 59.4 per cent quarter-on-quarter, margins slipped to 4.6 per cent in the second quarter of the current fiscal from 11.6 per cent in the previous April-June quarter.

Revenue from operation was up 79 per cent to Rs 38,390.89 crore.

GAIL said it transported 107.71 million standard cubic metres per day of natural gas in Q2 (July-September), down from 109.47 mmscmd in the previous quarter. Gas marketing volumes also dropped almost 8 per cent to 92.54 mmscmd.

Sandeep Kumar Gupta, Chairman & Managing Director, GAIL, said the company has incurred a capex of around Rs 3,970 crore during the current half-year, mainly on pipelines and petrochemicals, which is 53 per cent of the annual target.

He said the company has won a bid to acquire bankrupt JBF Petrochemical Ltd through the corporate insolvency resolution process.

"With this, the company will further expand its presence in the southern part of the country."

At the investor call, Jain said the acquisition, which may entail about Rs 2,000 crore investment, is likely to be completed by March next year and the company will take two years thereafter to start operations of the petchem plant.