PetGas’ forecast retained despite delayed FID for third Pengerang LNG storage tank

KUCHING: Analysts retained their forecast on Petronas Gas Bhd (PetGas) despite the delay in the final investment decision (FID) for the third liquified natural gas (LNG) storage tank in Pengerang.

AmInvestment Bank Bhd’s research team (AmInvestment) pointed out that the group is reevaluating its project execution approach for the third LNG storage tank in Pengerang due to escalated project

costs arising from higher construction material prices.

“Nevertheless, we note that it remains committed to proceed with the project, with expectations to reach FID by mid-2023 (delayed from its earlier guidance of end-2022),” it said.

To recap, PetGas’ 65 per centowned Pengerang LNG (Two) (PLNG2) has invited prospective contractors last year to submit non-binding expressions of interest to utilise a proposed new tank with a preferred capacity of 160,000 cubic metres on a 20-year commercial lease agreement.

Meanwhile, for the finalisation of regulatory period 2 (RP2) tariff for PetGas’ regulated operations, particularly the gas transportation and regasification segments (which collectively accounted for 57 per cent of 9MFY22 EBIT), AmInvestment noted that the group is still expecting the decision to be made by the Energy Commission by the end of December 2022.

“The group has also included suggestions to mitigate earnings volatility within the two segments caused by fluctuations in fuel gas prices and foreign exchange rates in the submitted proposal,” it added.

For 9MFY22, total internal gas consumption (IGC) costs incurred are estimated to be equivalent to five per cent of the total operating costs (RM140 million based on our back-of-envelop calculations).

“The group now anticipates that fuel gas cost savings from 2020 to 2021 will be able to make up for

elevated IGC costs recorded so far this year, therefore ruling out the possibility of further cost recovery through RP2 tariffs. We have not incorporated any cost recoveries in our current forecasts,” AmInvestment said.

All in, the research team maintained its ‘buy’ recommendation on the stock.