Shares of oil, gas and power companies rose on Tuesday after the spot price of liquified natural gas hit a three-year low.
Torrent Power Ltd. stock jumped 5% followed by Gail (India) Ltd., which gained 3.1%.
Shares of Gujarat State Petroleum Corp. and Indian Oil Corp. advanced 2.9% and 2.2%, respectively.
LNG Spot Prices Plunge
LNG spot prices are currently trading around $8.3-9 per million metric British thermal unit, marking a 56% year-on-year drop from the average price of $18.75 per million metric British thermal unit same period last year.
The current prices also reflect an 87% drop from the record high of $70 per million metric British thermal unit that LNG spot prices touched during the Russia-Ukraine war.
Spot LNG prices corrected 14.4% month-on-month to average $8.9 per barrel, Systematix Institutional Equities had said in a March 11 note. While the average in the January-February 2024 period was $9.7 per barrel, a 61% year-on-year drop.
Why LNG Prices Are Falling
Demand for LNG from Asia and Europe generally rises for heating purposes. However, global demand remain muted despite the cold weather, according to Reuters.
Furthermore, global supply conditions easing and plants which recently went under maintenance coming back on stream have reportedly led to high inventory levels in Asia and Europe.
These factors have collectively been pushing prices down.
Furthermore, Systematix Institutional Equities expects LNG prices to remain soft in the near to medium term, as market for the gas generally remains weak during the summer season.
How Will Companies Benefits?
Lower prices have opened opportunity for counters to expand their sourcing and sales to power, fertilisers and refining sectors.
Companies and refineries like Gail (India), Gujarat State Petroleum, Bharat Petroleum, and Indian Oil are reportedly doubling down on spot LNG with prices at a three-year low.
For companies like Gail (India), Gujarat State Petroleum and Indian Oil who usually import LNG, lower spot prices translate into cheaper LNG purchases. This could improve their profit margins, especially if they can pass on some of the savings to consumers. Buying LNG can help the companies fill up their storage and fulfill short term supply needs at a more attractive price, compared to long-term contracts that usually last 20-25 years.
For Torrent Power and Gujarat State Petroleum, lower LNG costs can lead to a decrease in Compressed Natural Gas prices. This can make CNG more competitive with other transportation fuels like petrol and diesel, potentially boosting demand for CNG supplied by these companies.
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