Canada Lures Petronet With Gas as Ambani Fails: Corporate India

Petronet LNG Ltd. (PLNG), India’s biggest liquefied natural gas importer, plans to buy the fuel from Canada to meet surging demand as output from a block operated by billionaire Mukesh Ambani’s company falls.

Petronet, based in New Delhi, is looking to Canada as Prime Minister Stephen Harper visits India this week to attract buyers and investors in Asia. Petronet has met Canada’s Natural Resources Minister Joe Oliver and wants to buy the fuel from projects on the North American nation’s east coast, Chief Executive Officer A.K. Balyan said in an interview in Sydney.

Petronet is seeking contracts from Australia to Russia to meet India’s energy demand that is estimated to more than double by 2035. The expansion has acquired urgency after gas production at Ambani-controlled Reliance Industries Ltd. (RIL)’s biggest field dropped 70 percent in about two years slashing supplies to power stations and fertilizer plants in the world’s fourth-biggest fuel consumer.

“We are looking for additional supplies,” Balyan said on Nov. 2. Canada has recognized “India as a preferred nation to deal with and we have indicated our desire to participate,” he said.

India’s energy demand is forecast to more than double by 2035 to 49.2 quadrillion British thermal units from 21.1 quadrillion Btu in 2008, according to the U.S. Energy Information Administration. The share of gas in India’s power generation mix will expand from 11 percent in 2008 to 16 percent in 2035, according to the EIA.

Record LNG Imports

The country’s LNG imports climbed to a record 10.13 million metric tons in the year ended March 31, according to oil ministry data. Overseas purchases were 4.4 million metric tons in the five months through August, the data show.

“Many factories, power and fertilizer plants are suffering because of erratic and uncertain gas supply,” said K.K. Mital, a New-Delhi based fund manager at Globe Capital Market Ltd. “Reliance’s production is also falling sharply, and that adds to the problem. More and more will need to be imported.”

Natural gas production from Reliance’s two main areas in the KG-D6 block is 20.5 million cubic meters a day and should have reached 81 million this year, the oil ministry said in a Nov. 1 statement. It has been dropping after production peaked at 67 million in the year ended March 2010. Reliance has said technical difficulties have affected production.

Tushar Pania, a spokesman for Reliance, didn’t reply to an e-mail seeking comment. Ambani is Asia’s second-richest man with a net worth of $23.7 billion, according to the Bloomberg Billionaires Index.

‘Underutilize Capacity’

Petronet is increasing import capacity two-and-a-half times to 25 million metric tons a year by expanding an existing plant at Dahej in the west Indian state of Gujarat to 15 million tons a year from 10 million tons and starting a new 5 million-ton project in the south Indian town of Kochi in the first quarter of 2013. It will set up a new terminal on the country’s east coast by 2016.

The projects will require more than $1 billion of debt, finance director R.K. Garg said in June.

“As Petronet ramps up import capacity, its very important they don’t underutilize it because they will be spending a lot to build them,” said Alok Deshpande, a Mumbai-based analyst with Elara Securities Ltd., who recommends investors accumulate the stock. “That is going to make them go out and aggressively get a lot of supply contracts.”

Petronet’s shares have increased 10 percent this year, lagging behind a 21 percent surge in the benchmark Sensitive Index. The stock was little changed at 172 rupees at the close in Mumbai. Of the 59 analysts who rate the company’s stock, 44 recommend a buy, according to data compiled by Bloomberg.

‘Energy Superpower’

The company’s quarterly profit rose to a record 3.1 billion rupees ($58 million) in the three months ended Sept. 30, after its LNG margin rose, Mayur Matani and Nishit Zota, analysts at ICICIdirect.com, wrote in an Oct. 22 report.

Canada, home to the world’s third-biggest oil reserves, will require almost C$650 billion ($652 billion) of investments to develop the country’s biggest resource projects over the next decade, according to Natural Resources Minister Oliver. Prime Minister Harper, who has touted Canada as an emerging “energy superpower,” has called it a national priority to build infrastructure that will let Canada diversify energy exports away from the U.S. and ship oil and gas to Asia.

Still, Canada blocked a C$5.2 billion bid by Petroliam Nasional Bhd. for Calgary-based Progress Energy Resources Corp. (PRQ), according to a Oct. 19 statement. Petronas, as Malaysia’s state- owned oil company is called, was given 30 days to appeal or make concessions.

‘Good Friend’

Prime Minister Harper’s government on Nov. 3 also extended its review of Beijing-based Cnooc Ltd. (883)’s $15.1 billion takeover of Nexen Inc. (NXY) for a second time, re-setting the deadline to Dec. 10. Canada’s government reviews foreign takeovers valued at more than C$330 million and considers six main factors in determining whether an acquisition provides a “net benefit.”

Harper plans to travel to India, the Philippines and Hong Kong from Nov. 4 to Nov. 11. Tomorrow, he’s scheduled to meet India’s Prime Minister Manmohan Singh, who he says is “one of Canada’s good friends and partners,” according to the text of a prepared speech Nov.1

Gazprom Contract

Petronet has a 20-year contract to buy 1.5 million tons of LNG a year from Chevron Corp. (CVX)’s A$43 billion ($45 billion) Gorgon development off the northwest coast of Australia beginning in about 2015, Balyan said in Sydney. Gorgon is scheduled to start production in late 2014, Chevron said in September.

“We need to have gas for the next three years, so we are in discussions with several suppliers for the short term to start with, and perhaps for the long term too,” Balyan said.

The Indian LNG buyer has met several “major companies” operating in Australia and is interested in acquiring more gas contracts or a stake in a project, he said.

“Today we have different options coming up,” he said. “New projects in new countries.”

Petronet on June 1 signed a preliminary agreement with OAO Gazprom, the world’s largest gas exporter, to buy 2.5 million tons annually of the fuel for two decades. GAIL India Ltd. (GAIL), a shareholder in Petronet, agreed to buy LNG from the Moscow-based company for 20 years starting in 2018 or 2019, according to an Oct. 1 statement.

Petronet is in “advanced discussions” with Gazprom to complete the deal, Balyan said.

To contact the reporters on this story: James Paton in Sydney at jpaton4@bloomberg.net; Rakteem Katakey in New Delhi at rkatakey@bloomberg.net

To contact the editor responsible for this story: Jason Rogers at jrogers73@bloomberg.net

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