Bangkok--14 Jan--Fitch Ratings
Fitch Ratings says the increases of the liquefied petroleum gas (LPG) ex-gas separation plant (GSP) price and the natural gas for vehicle (NGV) retail price will improve the earnings of PTT Public Company Limited’s (PTT) gas business. In addition, the change in the price formula for the LPG ex-refinery price to make it more in line with market prices should benefit Thailand’s oil refiners.
PTT would generate about USD300m in additional cash flows a year from its GSP business as a result of the increase in the LPG ex-GSP price. This is assuming 65% of LPG volumes are sold to households, industrial and the transportation sector, as well as the higher LPG ex-GSP price of USD498 per ton and PTT’s annualised 9M14 LPG sales volume. Moreover, the increase of the NGV retail price by THB2 per kilogram (THB1 in October 2014 and THB1 in December 2014) will reduce PTT’s losses from the NGV business by a meaningful level. PTT generated negative EBITDA of THB15.1bn (around USD464m) from its NGV business in 9M14 on NGV sales volume of about 8,820 tons per day. At these volumes, PTT would see losses reduced by THB5.6bn a year.
The change in the LPG ex-refinery price to Saudi Aramco’s contract price (CP) minus transportation costs should also slightly improve the gross refinery margin of Thai refiners. This should allow the refiners to run their refineries at a more optimal level. In addition, Thai refiners would get more benefits from the change in this price formula, when oil prices rise.
On 7 January 2015, Thailand’s National Energy Policy Administration (NEPA) decided to adjust LPG wholesale prices to reflect actual costs, from the previous capped price of USD333 per ton. The new price will be the weighted average of the LPG ex-GSP, LPG ex-refinery and imported LPG prices. The LPG wholesale price will be revised up to USD488 per ton based on this formula effective from 2 February 2015. Prices are expected to be updated on a monthly basis.
The NEPA has also approved a change of the LPG ex-refinery price formula to a CP price minus USD20 from the previous formula of 24% of the capped wholesale price at USD333 per ton plus 76% of the CP price.