Ladies and gentlemen, good day, and welcome to Petronet LNG Limited Q2 FY23 earnings call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Hemang Khanna from Nomura. Thank you, and over to you.
Thank you, Yashashree. Good afternoon, and thank you everyone for taking the time to attend the post results conference call of Petronet LNG. We are privileged to have with us the senior management of Petronet LNG today, led by Mr. Vinod Kumar Mishra, Director Finance, Mr. Rakesh Chawla, Group General Manager and President, Finance and Accounts, Mr. Gyanendra Kumar Sharma, Chief General Manager and Vice President, Marketing, Mr. Vivek Mittal, Chief General Manager and Vice President, Marketing, Mr. Debabrata Satpathy, General Manager, Finance and Accounts, and Mr. Ashwani Agarwal, Manager, Finance and Accounts. We now hand over the floor to the management to make their opening remarks, post which we will open the floor for questions. Thank you, and over to you, sir.
Thank you very much. Very good morning to all of you. First, I will just read out the highlights, then we can take the questions. There has been highest ever turnover in this Q2 as compared to previous year's turnover of same period or in the previous quarter. The growth has been as compared to Q2 of the previous year. It has grown by 48%, and as compared to previous quarter, it has grown by 12%. PAT and PBT has also increased in current quarter as compared to the previous quarter by 6%. Now, just I tell the highlights of this quarter.
During the quarter ended 30th September, Dahej terminal processed total 182 TBtu as against 196 TBtu in the previous quarter and 225 TBtu in the corresponding quarter. Kochi has processed 10 TBtu in the current quarter as compared to 12 TBtu in the previous quarter and 15 TBtu in the corresponding quarter. Total throughput in both the terminals has been, in this quarter, 192 TBtu as against 208 TBtu in the previous quarter and 240 TBtu in the corresponding quarter. The company's financial result has been. PBT has been INR 994 crore in the current quarter as against INR 937 crore in the previous quarter and INR 1,105 crore in the corresponding quarter.
PAT has been INR 744 crore in the current quarter as against INR 701 crore in the previous quarter and INR 823 crore in the corresponding quarter. Company has registered highest ever turnover of INR 15,986 crore as against INR 14,264 crore in the previous quarter and INR 10,813 crore in the corresponding quarter. Company reported highest ever turnover of INR 30,250 crore in the H1 of this financial year as against INR 19,411 crore in the corresponding H1 of 2021-2022, registering a growth of 56%.
Due to foreign exchange volatility, lease liability has an accounting impact of foreign exchange loss amounting to INR 98 crore as per the provision of relevant Indian accounting standards, Ind AS. Considering the performance, the Board of Directors of the company has approved a special interim dividend of INR 7 per share. The company was able to achieve robust financial performance despite high LNG prices due to optimization in its operation. Now the floor is open for questions. Thank you very much.
Thank you very much. We will now begin the question -and -answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephones. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. We have our first question from the line of Maulik Patel from Equirus. Please go ahead.
Yeah, thanks for the opportunity. A few questions. Can you just quantify your trading or inventory gain in this quarter?
Well, trading gain in this quarter has been INR 273 crore and i nventory valuation impact has been INR 118 crore.
INR 118 crore?
One one eight.
This is compared to close to around INR 139 crore in the previous quarter of Q1 FY 2023 c ombined?
It was in previous quarter, INR 103 crore trading margin and INR 110 crore inventory valuation impact. Total INR 213 crore was there.
Okay, got it. The second question is that there is a significant jump in your inventory compared to the March. Does this indicate that there's a lot of volumes lying in your storage tanks and offtakers are not taking that?
Of course, it's not that they are not taking it. They are taking it, but sometimes it happens that they are not able to offtake it, and some shutdowns are taking place in some of the industries. All these things, in fact, sometimes slow down the send out, and that's the reason sometimes it becomes like that.
Okay. Sir, last question. GAIL is mentioning in their con call that, next year onwards, monsoon onwards, the Dabhol terminal will be fully available. In your assessment, what could be the potential loss to Petronet because GAIL sell a lot of volume or some cargos during the monsoon to the Dahej and possibly at Kochi also? In your assessment, what could be that loss to the volume?
It's not a loss to the volume. If you see the capacity of Dahej terminal. It is already booked to the extent of almost 16 MMTPA.
Correct.
If you look at in all the volumes of RasGas, 7.5 MMTPA and on mobile volume of 1.4-7 MTPA. Capacity booked by various offtakers to the extent of almost 9 MMTPA. That is the assurance that we are having a utilization to the maximum possible limit. Means o ut of its 16.5 MTPA total capacity is booked. Out of 17.5 MTPA, 16.5 is booked. It doesn't matter whether Dahej terminal or Dahej, Dabhol terminal will be in operation for the entire year. Of course i t may affect to some extent, but as far as we are concerned, we are not that much affected because of the capacity booking on Dahej terminal for to the extent of almost 16.5 MMTPA. I think others may get affected because we have long-term contract which are tied up with Dahej. It's not a challenge, I think.
Okay. Sir, if you allow me the last question. Sir, any update on the potential investment we're planning in biogas and the petchem side?
Biogas is of course still we are exploring because certain issues have come up regarding allotment of land in the state of Haryana. Those things are not sorted out, so we are not able to take up the projects in Haryana. Initially, four, five projects we were envisaging to take up, but now, unless this land issue is resolved. We will not be able to set up it. We are taking up with Haryana government, and probably they are also operating. They are saying there are certain issues and because there has to be a provision for allotment of land. Likewise, they are resolving it in talks with them, so that is there. Petchem, as you have asked, so we are in fact going for this PDH/PP plant.
That, in fact, process is going on, and we are in the process of licensor selection. After completion of that process, we'll come to know about the exact CapEx which will be incurred. We will be taking up with the board.
Okay. Probably by the end of this financial year, do you expect to get an approval from the board, or it will be like?
Maybe it may cross this year. Maybe March 2023 can be.
March 2023.
That has a right time. Right.
Okay. Great. Thank you and wish you all the best.
Thank you.
Thank you. We have our next question from the line of Varatharajan Sivasankaran from Antique Limited. Please go ahead.
Yeah. Thanks for the opportunity. If you can share the lease detail on the impact of-
I'm sorry, sir. Can you speak louder, please?
Yeah. Can you hear me now?
Can you use the handset, please?
Is it better?
Yes. Please go ahead.
Yeah, the lease-related, like, you know, charges and impact on EBITDA as well as revenue?
You are asking about lease impact, Ind AS impact ?
Yeah, that's right.
It is to the extent of INR 98 crore in this quarter, and it was INR 124 crore in the previous quarter.
INR 98 crore. With this rupee depreciation, how do you expect this to change?
Actually, it has caused that part also. In fact, if you see, there has been upward rise of this dollar against rupee. It was somewhere around INR 79-INR 80 in the last quarter. It has gone to INR 82+. It has impacted definitely. That's why there is a loss to the extent of almost INR 100 crore in lease payment.
Sure. Is the INR 100 crore something which we have to assume going forward or would it depreciate assuming a INR 81, INR 82 rupees kind of a number, would you expect this to go up further?
Dollar rate you are asking, INR 82, INR 80?
Yeah. Yeah.
Sir, we cannot predict all these currency markets.
No, no, we can't predict the numbers. I'm just saying if I assume INR 82 as a number, would this INR 100 crore become INR 105 crore, INR 110 crore or will stay at closer to INR 100 crore?
I can give you a ballpark number. If there is an increase of one rupee in U.S. dollar. It means roughly INR 40 crore of loss.
Cool. That is useful. Thanks. Great. Last question on your East Coast terminal, any activity currently?
Yeah, it's great news. We are. Yeah, this is the right time you ask this question. Yesterday, we had board meeting, and our board has approved the investment approval for Gopalpur FSRU terminal. Total CapEx will be INR 2,305 crores, and we are going ahead with this Gopalpur East Coast terminal. Now all the term sheets will be signed with Gopalpur Port Limited, and then we will work out all the packages for the project. Basically three packages will be there in the project, which will be considered, and that is basically what is a jetty proposal. Jetty package will be there. Then pipeline will be there because the Gopalpur Port is roughly 36 km away from the trunk lines of GAIL, which is Jagdishpur-Haldia & Bokaro-Dhamra Pipeline.
It is 36 km from that pipeline, which is basically a Srikakulam-Angul pipeline. It can be connected to that trunk line. That pipeline package may be there. Likewise, and then top side facilities for LNG jetty will be there, for which also third package will be there. Likewise, we are proceeding with this project. This is good news that board has approved, and now we are going ahead with Gopalpur LNG terminal.
Great. I just wanted to check this INR 2,300-odd crore, like, includes everything, your pipeline? Or-
Everything. It is inclusive all taxes and duties also.
Wonderful. The capacity would be how much, sir?
4 MMTPA capacity. 4 MM.
Thanks a lot. I'll come back and join the queue.
Thank you.
Thank you. We have our next question from the line of Somaiya V from Spark Capital. Please go ahead.
Thanks for the opportunity, sir. My first question is on utilization. Last quarter, our overall utilization in Dahej was around 82%. Any color I mean obviously one impact could have been the higher spot LNG prices. Any other color that you would like to add, any impact on the long-term contracts, anything from the Gazprom supply issue that impacted? Do you see anything I mean things getting better during rest of the year? The take-or-pay clause could probably compensate for this. That's first part, and second part is if you could share what is the current level of utilization in Dahej, that would be helpful.
Okay. First is the utilization level. This time, utilization of Dahej has been 80% in the Q2. This was little bit lower than 87% in the previous quarter, and 99% in the corresponding quarter. Utilization is low, and reason is very obvious that price of spot LNG is very high. Spot cargos, which used to come earlier, are not coming. That is the basic reason. Of course, the long-term LNG is coming, so that's why it is still good as compared to other terminals where not much gas is coming. That way it is still better. As for the rest of the year, there's a good news that prices have come down of spot LNG also. Now it is in the range of $24 around.
I think we are hoping that, in the Q4 at least, it will be way below $20, so maybe $15, $16, $15-$20 price. That will be affordable, and then perhaps some more LNG will be coming to India, and then utilization will further increase. Right now, of course, it's a difficult situation because not much spot LNG is coming to India. That is the reason. Of course, we are trying hard to mitigate that particular loss, which we are incurring by not having more spot LNG by way of optimizing our LNG consumption.
In fact, we have been able to reduce our LNG consumption in our Kochi plant also, where we are able to optimize it through grid power, and we are not using LNG for operation of GTGs. That way, we have saved a lot of LNG and power savings to the extent of almost INR 15 crore per month. That's why we are optimizing. We are saving LNG. Similarly, in case of vessel also, we are using more FO and saving LNG to be used as fuel for the vessels. That is also saving a lot of LNG. Whatever LNG we are saving, optimizing, that we are using for trading. That's the reason you can see that we have trading gain of INR 273 crores as compared to INR 103 crore in the previous quarter.
We are trying to compensate whatever loss we are having in low-capacity utilization through trading of LNG. To great extent, we have done. Had there not been foreign exchange loss of INR 98 crore, which we have incurred in this loss, we would have crossed the corresponding quarter profit also. In fact, it was INR 823 crore in the corresponding quarter. INR 100 crore, if it has not been there in this time, in this loss then we would have got almost INR 844 crore profits. Still, we are able to maintain. It's a notional loss, but we have to show in the financials. We have shown it, but otherwise physically, if you see, we have done extraordinary effort in not reducing our performance as compared to the corresponding quarter. We are still better than previous quarter.
We could have been even better had there been not much of this foreign exchange loss, which is a notional loss, and we have to book it.
Understood, sir. Just one follow-up on that. Any impact of the Gazprom, you know, supply not being there to us?
Gazprom supply, GAIL is too much affected, but we are also affected to the extent that some of the cargoes of Gazprom were coming to Dahej. Those cargoes we are not able to get. There has been some default by GAIL also because they could not bring the Gazprom cargoes, which were scheduled for our Dahej terminal. There has been impact, but we are trying to compensate, as I have told you, through trading and through other things. It has impacted, but GAIL is more impacted by Gazprom shortfall, which is there.
For us, would this be under a take or pay clause?
It is there. That's what, that part I could, I will answer now because what's happening that, we have a calendar year as our take or pay obligation. In Q3 of this year, we'll book, use or pay kind of thing, and, whatever capacity is not utilized, then we will charge a use or pay charges from the off-takers. As far as GAIL is concerned, you very well know that whatever they have defaulted, Gazprom has defaulted, there is no mitigation in the contract. Hardly there is a liquidated damage to the extent of 20% of the price of gas. That is hardly anything as compared to the spot LNG prices in the market.
That way, GAIL is impacted, but they are still in talks with the Gazprom, if they could do something for them.
Thank you, sir. Just one last question from my side. Update on CapEx for this year and next year, what you are looking at. Also, if you could give some color on the progress on all our projects, be it Dahej expansion, the FSRU timeline and you know, PDH/PP. How should we look at CapEx for the next couple of years? Thank you.
CapEx, if you look at, as I told earlier also, now I am again telling you that we have already constructing two tanks with a CapEx of INR 1,246 crore at Dahej. It is in progress. Almost you can say that 38%-39% of the progress is there. Second project which we are undertaking is third jetty at Dahej, which will be having a CapEx of INR 1,700 crore. Dahej expansion, downstream expansion, we are doing 5 MTPA from 17.5 MMTPA to 22.5 MMTPA. That downstream expansion is in fact will be costing around INR 570 crore only.
Whereas if you go for a greenfield project LNG terminal, it will cost around INR 5,500 crore, but it's a low-hanging fruit, so we are doing expansion with just CapEx of INR 570 crore of 5 MMTPA capacity. This will all be complete by the end of 2024 or beginning of 2025. This is how we are proceeding in Dahej terminal. CapEx you were asking for this year, it will be around INR 1,250 crore. Next year, of course, will be there, but so far we can say that it will be almost more than double, maybe INR 3,000 crore we may reach next year. CapEx will increase because we have so many upcoming projects. Like I have told you that Gopalpur terminal is coming up.
As and when the contract is awarded for the packages of Gopalpur LNG terminal, CapEx will happen next year. Those things will come now. Apart from that, whatever PDH/PP plant we are going to have at Dahej. That we will see next year what happens because approval is yet to be obtained from both. It may take next year, March or April will be there for approval of this project. Otherwise, CapEx, as I told you, this year INR 1,250 crore. Next year maybe more than that, maybe INR 2,500-INR 3,000 crores will be there. This is our expectation, and let us see how much happens in the next year.
Thank you. We have our next question from the line of Sabri Hazarika from Emkay Global Financial Services. Please go ahead.
Yeah, good afternoon, sir. I have three questions. The first one is on this East Coast terminal only. Have you booked any capacity or do you have any visibility of capacity booking for this?
See, it's capacity booking is already. We are talking to so many people, including off-takers, and we will be able to do that something at least 30%, 40%. We will try to engage because what's happening that there is a mechanism of swap in gas, particularly. We can, in fact, GAIL has already laid pipeline like this, Haldia-Dhamra-Bokaro pipeline. Through this pipeline, we can optimize the utilization of terminals. Perhaps if somebody, say, GAIL or IOCL has a customer in Odisha region, and they can take gas from our Gopalpur terminal through swapping of the gas, and can directly bill to that customer from Dahej or Dabhol to Odisha on CST sale basis, and by taking volume from our terminal.
In exchange, they will provide that volume in Dahej or Dabhol to us. This is a mechanism provided by CST Act also. For gas industry only, there is no requirement of physical movement of goods from one state to another. If it is connected with a common carrier pipeline and some volume is introduced in the pipeline, then any customer can take that volume from any state. If it is put in one state, in another state, any customer can take it, and it will be deemed as if molecules have traveled to that state. That is a mechanism which is a good thing. It's open access. We hope that even if GAIL or IOCL or BPCL have any customer in that region, they can take gas from Gopalpur.
They will save in terms of transmission costs from Dahej or Dabhol to eastern region, which is costing almost $3 per MMBtu. We can optimize on that cost, and we can also share some margin with them. They will also have their gas at a very cheap price, landed at in Odisha or eastern region. This is how we are trying to optimize it. Perhaps on east coast, we are also trying to book some capacity, and also we are trying to have SS LNG project to be launched over there because we have seen that there are lot many mining industry which are located in Odisha region. There are a lot of dumpers, tippers, and very heavy machinery is used with diesel.
We can, in fact, use LNG as fuel for those particular dumpers and cranes and tippers. I think that area is there where SS LNG, small-scale LNG, will be launched over there. Apart from that, there are lot many city gas distribution entities are coming up along this pipeline, Jagdishpur-Haldia & Bokaro-Dhamra pipeline. They will also need gas, which will be provided through the nearest terminal, which will be Gopalpur. They can use that gas. If they want to, they can swap it with the domestic gas with GAIL. If it is a city gas distribution company, they can take gas from there instead of bringing it from West Coast of India.
That way it can be utilization will be optimized, and we are hopeful that capacity booking is not an issue. It will be dealt with properly.
All right, sir. Second question is on your spot LNG that you—I mean, it's quite commendable that you are able to extract this much quantity. What exactly is the guidance? If I assume that Dahej operates at, say, 85% kind of a capacity utilization, is it fair to assume that 2-2.5 TBtu of spot LNG you'd be able to, like, save and sell it on the spot market?
The spot market you are talking about here, spot LNG itself is so costly. Who will buy that way?
No, I am talking about the technical feasibility of, like, the saving that you have done by using grid power and, like, saving upon the internal consumption and then selling it in the spot market. Is there a ballpark rate? I mean, it's a big delta right now for the company, I guess. I was just wondering.
We are selling this gas at spot prices almost, or we are selling on the gas exchange.
Gas exchange?
The gas exchange is there, so we are selling on that whatever prevailing price is.
Yeah, because this has increased from 1 TBtu to 2 TBtu from Q1 to Q2. I was just wondering, is there a ballpark rate? I mean, can we assume like?
Okay. Debabrata will reply to you. Sorry.
Sabri?
Yeah.
This is Debabrata.
Yeah.
Am I audible?
Yeah. You're audible. Yeah.
Let us look at it from the financial numbers first. You see, the volumes have gone down from 87% to 80%. At the same time, there is a commensurate increase in the trading margin. Right? Trading margin, trading gain that has been done. If we look at financial numbers, then as explained to the market, that as long as the spot prices are high, the main reason of volume going down is spot prices, basically. As long as the spot prices remain at that level, whatever efficiency we do, that efficiency will fetch some trading margin. Once the spot prices come down to a closer to a level of the long-term prices, then we would then definitely the volume will increase, and we would not need the trading gains. The message here is that this is not a one-off thing.
It has been proved time and again since last six to eight quarters that if one doesn't happen, the other will happen because of the sheer volume and scale of the and the positioning of the company and the commercial tie-ups. We need to understand it financially. As far as you are asking about the technical details, that we do not disclose. How much technically it will happen and how it can, because the spot prices are also fluctuating. Depending on the spot prices, we also do more or less trading deals. I hope that will answer your question.
Right. Right, sir. Got it. The third is basically the bookkeeping question. How much was the regas service income and the hedge volume, Gorgon volumes in Dahej and Ind AS impact on interest depreciation and expenditure?
Yeah. Gorgon volumes in Dahej was 13.9 TBtu. It is YTD. You have the last quarter's numbers.
Okay. Right.
YTD is 13.9 TBtu. The regas income is INR 438 crore. As far as the index figures. INR 133 crore at gross margin level positive. INR 8 crore at other expenses level positive. INR 98 crore Forex loss. At other expenses level negative. INR 84 crores of depreciation and INR 79 crores of finance charges.
All right, sir. Fair enough. Thank you so much, and all the best.
Yeah.
Thank you. We have our next question from the line of Puneet from HSBC. Please go ahead.
Yeah. Thank you so much for the opportunity and great effort. My first question is on the FSRU terminal. Would you start the construction before tying up with the off-takers or after tying up with the off-takers? Similarly on the other side, from the sources of gas.
See, construction will take off because it cannot wait. In the meantime, before it is completed, we will work out all these issues, and we will book some capacity at least. At least we will mitigate those risks, and that is sure. Perhaps there are not many customers coming up over there. The gas demand is, in fact, there. Perhaps we'll be able to tie up before the completion of the terminal. It's not that. Nowadays, it's not always possible to have 100% booking like we had with Dahej terminal. At least some to some extent, 30%, 40% at least we will try to tie up so that there is assurance that that much capacity will be utilized.
Your question, as you say before tying up, that means we will have to wait long. Still, whatever things we have to do, it will take some time, six months, one year, and more than that also. We have to do that effort in between and tie up so that it is, simultaneously it is done, both the things. By the time it is completed, capacity will be in place, capacity will be booked to some extent, and then we can further explore, other areas where we can sell the gas to utilize the terminal.
You're looking to tie up 1.6 metric ton, actually million ton.
Almost, you can say. Yes.
That too on long-term basis, right? Any potential leads that you can share that you are discussing with?
We will not like to share. Unless something happens, we cannot share those things. It's all secret. As and when something happens, you will come to know.
Okay. That's useful. When do you actually start placing orders for this?
Orders will be, maybe in the next three, four months, five months, we will start placing orders because we have to sign term sheet first with Gopalpur Port Limited. Then a lot of things, like site development and other infrastructure things are to be completed. Simultaneously, we will also try to float the tender for various packages, which I have just mentioned, including jetty, pipeline, topsides facilities, all those things. That part we'll do later, but at least four months, you can say four , five or six months it may take.
Okay. Is environmental clearance done or is that yet to be done?
It is to be done. It has to be done. Environmental clearance, we are now, the board has approved it, so now we are going for environmental clearance first and all the clearances required from the Odisha government that we will see if required.
I would presume draft feasibility report is now completed.
That is over. That has been completed by Engineers India Limited. The financial appraisal has been done by SBI Caps. It is now found that it is the project which we can undertake. It is having good IRR and it's a good project. We should go. That region which in fact is deficient of the gas, eastern region. I think once the gas reaches in that region, more and more avenues will come for supply. Like I have said that city gas distribution companies are coming, so small consumers will come through those, CGD entities. That way it will further pick up.
Okay. Understood. That's really helpful. Secondly, on the take or pay contract, any, you know, acknowledgement from your customers that they will pay and what's happening in the current quarter? Have they paid for the shortage capacity, or will you book the shortage only in the December quarter?
No, it's shortage will be booked in December. That is the last quarter of the calendar year.
Right. Okay.
It will be in Q3 that we will book use-or-pay charges. So far, whatever default has been committed, we have not booked any revenue till Q2. Now in Q3.
Okay. You've not booked revenue also. Okay.
Yes. Perhaps they have not paid last year, user pay. That is true. We are following up with all the customer to pay, and let us see what happens in next quarter.
Okay. Okay, that's good. That's helpful. Thank you so much, and wish you all the best.
Thank you.
Thank you. We have our next question from the line of Rakesh from HDFC Mutual Fund. Please go ahead.
Thank you very much, sir, for the opportunity and congratulations on delivering.
Sorry to interrupt.
December.
Mr. Rakesh, y our volume is very low.
Okay, just give me a second. Is it better now?
Yes.
Okay. Thank you for the opportunity. I have three questions. One is short-term and two are long term. In short term, if I look at your Dahej volumes, for the first nine months of the calendar year, you probably would have done about 10.5 or 10.7 million ton of LNG. Assuming Q4 is also ballpark in the similar range, probably you'll end up about 14, maybe 15 million ton. Does that mean we're gonna book about 1 million ton or maybe 1.5 million ton of take off the revenues in the coming quarter? Would that be ballpark the right match?
Right now I'm not confirming anything, but whatever default is there in long-term volumes, that will be, of course we will account for in Q3. Default is there to some extent, so it's not that it is not there. Everything will be known in the Q3.
Got it.
Capacity utilization, I have told you it is around 80% only. That way you can just assume that, whatever shortfall is there, that will be booked as user pay charges.
Got it. Sir, two more questions on your East Coast terminal. Would we be competing with the Dhamra terminal, which probably would be in the vicinity, or maybe about 300, 400 km far away from each other? Does it mean that we'll be competing for the same markets, or will the markets for both the terminals be different? An extension of that, if you can help us understand what is the demand potential on that part of the country from LNG demand perspective?
Dhamra capacity is already booked, and perhaps many industries have already tied up with Dhamra terminal. I think that is already booked. Now additional volume will be coming from our Gopalpur terminal. This is how we are banking on. As far as the industry is concerned, nearby industries, if you look at in Odisha region, the major anchor customers are there, which includes NALCO, Utkal and Vedanta. Three projects are coming up. They are the anchor customers who could be potential customers for our terminal. Apart from that, I have told you that swapping of the gas and other thing mechanism will be adopted, and FSRU LNG will also be there.
That way we will be able to utilize almost 50%, 60% in the next months after commissioning in three, four years. I think, you know, that will be good enough to at least float. We see that there is a potential increase in the consumption of gas in years to come. It's only for the time being that the consumption is low because of high LNG prices. As and when these prices will be normal, the consumption will increase. We hope that by 2020, by 2026, it will be much, much higher. Therefore, demand will be there in that region. Vizag is also there, which is one of the potential customers.
Right. One last question. Between FSRU and a land-based terminal, if you can help us understand your choice. Also, but my understanding is that currently Germany is also bidding out for a lot of FSRUs to move away from the pipeline gas which they have. That means they need to put in more LNG terminals. Do we see a possibility where availability of FSRU itself might be a challenge in the coming years, or that's not an issue at all?
You are right, because it's not easy to get it, but of course we will try to do that. If we are able to find a good FSRU, then we will hire it. We have a provision in this project that later on we will convert this terminal to land-based terminal. Initially we are going for FSRU terminal. That way we have planned, and perhaps maybe after five years we may venture to set up this land-based terminal. Whatever facilities we have created, like, we will be able to construct jetty for this project, all these infrastructure will be used for land-based terminal also. It's a common thing. With not much CapEx, we'll be able to set up land-based terminal in future based on the demand perspective in that region.
Right now we are going for FSRU, and we will see how much market is there and what is the price available. If at all we get a good price, means whatever USD 70,000-USD 80,000 per day kind of FSRU if we get, dollars per day, then we'll hire it. If it is very costly, then perhaps it will not suit our economics in future. We'll see what happens. As of now, market is not good to assess whether this will continue like this. In future, prices will be lower and perhaps we will be able to hire FSRU and there is no issue as such.
Understood, sir. From a timeline perspective, is it fair to say, assuming you take probably about a year to get all the approvals, environmental approvals and local approvals, et cetera, and then you probably would need another three, four years to get, or the timelines are little shorter. If you can help us understand-
Three, five years for construction of terminal maximum.
Okay, understood, sir. Thank you very much and all the best, sir.
Thank you.
Thank you. We have our next question from the line of S Ramesh from Nirmal Bang Equities. Please go ahead.
Hello, good morning, and thank you very much. On the FSRU project, if you can help us understand what is the kind of, you know, volume required to generate the IRR expectation and what is the tariff assumption there?
This is all actually. You are asking very internal thing, but of course, I am telling you that we are having handsome IRR. This IRR is good enough as per our this project appraisal and investment policies. We are having adequate IRR coming this project. Capacity utilization, we are taking almost 50%, 60%, and that way we are working it out. Maybe after five years it will be almost 70%, 80%. This is how we are proceeding, and we hope that it will be utilized to the maximum percentage, but at least it will go up to 80%.
Okay. On the capital cost for the FSRU, when you talk about FSRU rentals of USD 70,000-USD 80,000, so how is that cost built into this capital cost? Is it gonna be capitalized on the lease? How will it work?
No, it's not capitalized. It will be OpEx. Capitalization doesn't include this, FSRU hiring charges w hich will be paid every year.
Okay. Fair enough. On the volume growth prospects, say for FY 2024/2025, see, we assume your brownfield expansion will be done by, say, end of FY 2024 or beginning of FY 2025. Yeah, apart from the improvement from the current base, which is low, is there any other additional growth you expect say in FY 2024/2025, assuming the gas prices are reasonable as per the current trend?
You are talking about Dahej terminal?
Yeah, Dahej and Kochi combined, you know, in terms of the volume growth for your company over FY 2024 and 2025.
Yeah, it will be, volume growth will be there because we are expanding the capacity. That's why I'm telling you that even with the estimated growth, it should be. I think right now consumption level is around 163 MMSCMD, and we hope that it will increase to almost 200 MMSCMD around next three years, four years. Because by that time, all CGD entities will come up, and they will also be helping in growth of consumption of gas in the interior locations of the country. That will be a great thing because still some of the projects are not completed, CGD. They are under construction. I think when CGD will pick up, it will be one of the highest consumers of gas in future.
Right now it is second highest, consuming almost 21% of the gas, the total kitty and, after fertilizer. I hope that after coming up of these city gas distribution project, gas consumption is bound to grow, we think.
Just to understand the timeline for the Dahej brownfield expansion, when do you think the first 2.5 billion tons and the next 2.5 billion tons will be ready for operation?
It will be by end of 2024 or maximum. Second phase, it is in two phases. One is in end of 2024, 2.5 MTPA, and balance is, say, in the next year, 2025, March, April, almost.
Okay, fair enough. Finally, when you're looking at your Dahej operation now, there are two terminals, Mundra and Chhara, and then the Swan LNG terminal. Is the Swan LNG terminal likely to see completion this year? How do you see the Chhara terminal coming up? Because there is a certain amount of competitive intensity, much as you are competitive. How do you see these new terminals, Swan LNG and Chhara terminals, taking shape in the next couple of years?
We have already booked capacity to the extent of almost 16.5 MTPA. There is no challenge to us as such, I think. Because if you look at all those things, it is not there with any other terminal. Has any other terminal got a long-term capacity booking? It's not there. Has any terminal got some long-term volume tied up back to back? It's not there. There is no competition as such with those customers. Of course, as and when those terminals will come, of course, they will also compete for the additional volume of spot LNG, for which we will be competing, and we are much, much ahead of anyone. In terms of the things that we have already recovered our CapEx, and there is nothing to lose on that front.
That way we can be competitive. Additional volume will be, of course, the competition will be there. Another thing is that it's not that terminal is coming, then it will be utilized. It will be seen whether that terminal is well connected with the pipeline network or not. Dahej is the most well-connected terminal with the pipelines of the country. As long as I know that at least four pipelines are connected to Dahej terminal. It's the most feasible location for taking the gas. All the terminals you are talking about, Chhara and other terminals, but they are not so well connected, and it also makes a difference in long term. Let us hope that we will compete with them for the additional spot volume only.
Long-term volume, we have security to that extent. That way we are well protected against any future terminals which are coming up.
Thank you. We have our next question from the line of Varatharajan Sivasankaran from Antique Limited. Please go ahead.
Thanks for the opportunity again. Looking in this case of Gazprom volumes, is there scope for GAIL to pull up a force majeure kind of a clause? Does something like that exist in contracts which can provide an escape route?
This is for the GSPA they have entered with the customer. You are talking about the contract with Gazprom itself?
No, no. I am talking about the offtake contract with the offtaker. Is there scope for GAIL to GAIL to pull up saying that this is a force majeure kind of a situation, and hence, like, you know, the compulsory take or pay may not apply on this volume. Is there scope for them to do that?
Yeah, it is. I think, I've not seen the contract, but it is there. They can invoke the force majeure clause. Because there is a disruption in the supply facility, then also f orce majeure is invoked. The Ukraine-Russia war is one of the events which can be seen as a disruption in the supply chain.
Fair enough, sir. Anything else actually happening on this LNG outlets, which you had originally entered into arrangement with IOCL and a couple of other players. Is that something which you are still progressing or is it on a hold at this point in time, given the economics?
It is taking place, but as you know that we have already tied up with one of the OMC. We are going for setting up 4 LNG station in southern region. We have already bought the LNG dispensing equipments and will be setting up maybe in next five, six months you will see that they are installed. It's not in a big way. It's going on. It will take.
Sure. It's more like a pilot. Yeah, understand that.
Yeah, pilot. Otherwise, other OMCs are also coming, like IOCL, BPCL and HPCL. They're also bringing their own LNG station. Our effort is not only to have some of dispensing station we should own, but we want that anybody can set up the LNG station. If oil marketing companies are doing this, good also because our objective is to supply it from our terminals so that our utilization level increases. Whosoever have the LNG station, if they take LNG from our Kochi terminal or from our Dahej terminal, that will also fetch some of the revenue to us. We are doing it because we want to connect with the customers but may not be that we will go in a big way right now. It will be in a phased manner.
We'll see whether this viability is there or not. We'll see 10, 15 stations. After putting up 20 stations, what is the visibility in that particular area? If it is good, then we will expand further. It's, you can say it will take time. Simultaneously other companies, OMCs will also open. Ultimately, this will be cannibalizing their diesel or their fuel, so they would like to set up on their own. We are not saying that we only have to set up this. They are doing, that means that they will do it and still we will be benefited out of it. We will do to the extent possible. We have started doing it.
Thank you. Ladies and gentlemen, in order that the management is able to answer all queries, kindly restrict your question to one at a time. We have our next question from the line of Manikanta Gare from Franklin Templeton India. Please go ahead.
Yeah. Good afternoon, sir. Thanks for providing me the opportunity. Wanted to check, now that you have taken the decision to go ahead with the Gopalpur FSRU, and you are doing other investments at Dahej and Kochi, are all your international scouting that you were doing earlier off the radar now? I'm also asking from the perspective that, you know, Europe
As and when something comes up, then we will discuss it and see the merit of the case. Right now, nothing is going on as far as the international acquisition or kind of thing investment is concerned, that is not there right now.
Understood. No, I'm also asking from the perspective, from the context that, you know, Europe is looking to add a lot of LNG import capacity, so if you are finding any opportunities there and if it is something that you'll be thinking about in the future.
Europe is doing only for their own consumption. For FSRU type of setup they are seeking. In fact, their objective is different. We are not envisaging any kind of investment in Europe. It could be somewhere where originally these LNG suppliers are located. It was there earlier, but now it is not there. We cannot answer a hypothetical question because we don't have anything right now with us. As and when it comes, we will see the merit of the case and then go ahead. Otherwise, we will not.
Understood. As of now you are saying that there is nothing on the radar.
Nothing on the radar right now.
Understood. Yeah. That's it from my side. Thank you, sir.
Thank you.
Thank you. Ladies and gentlemen, that was the last question for the day due to time constraints. I now hand over the call to Mr. Hemang Khanna for closing comments. Over to you.
We would like to thank the management of Petronet LNG for taking time to answer all of the questions that were posed today. Thank you so much, sir, and thank you all of the participants. Wish you a very happy day ahead.
Thank you very much. Thanks to all of you.
Thank you.
Thanks.
Thank you. On behalf of Petronet LNG and Nomura, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.