GUJGA has a long-term contract with Shell which will expire gradually by 2024. Volumes under the contract have already reduced from 2.5mmscmd to 2.2mmscmd and are expected to decline to 2mmscmd from 2020. Due to the supply glut globally, LNG prices have declined from $6.0/mmBtu in 2019 to below $3/mmBtu this year. Replacement by low-cost LNG would improve profitability. The company is also ramping up its capacity at Morbi to enable it to handle ~8mmscmd.
NGT order may provide further volume boost: In Nov’19, the National Green Tribunal (NGT) had stipulated strict action against pollution control boards that do not comply with its Jul’19 order. It has already levied Rs 4 bn of fine on the Morbi cluster in 2019. We believe that further volume boost like Morbi could come from across the country. Gujarat is home to critically/severely polluted industrial clusters such as Rajkot, Ankleshwar, Batala, Bhavnagar, Tarapur and Vapi. Any development on this front could boost volumes significantly. GUJGA stated that customers with volumes of 2-2.5mmscmd had shifted to dirtier fuels. However, strict environmental compliance may result in a large number of these consumers returning to gas.
