GAIL shares gain as gas sourcing cost to come down due to fall in US LNG prices

GAIL shares closed higher on Wednesday as investors expect the company to benefit from a sharp drop in US natural gas prices due to a fire incident in a Freeport LNG (liquified natural gas) terminal.

The shares rose as much as 3.33 percent to Rs 151.85 on the BSE in early trade but later pared gains to close 0.37 percent higher at Rs 147. The stock has gained for the last two sessions.

Freeport LNG is estimated to be exporting around 57 million standard cubic metres of gas each day, of which, 10 percent goes to Europe. Now, due to the fire incident, Europe's import volume has reduced, thereby leading to more gas availability in the US. Hence, the gas prices have seen a sharp drop in the US.

While partial operations may be restored in the next 90 days, full operations are unlikely to be in place until late 2022.

GAIL is likely to benefit from the lower US prices as nearly 50 percent of its imported LNG comes from the country.

The company buys LNG on contract from the international market to sell at contracted and/or spot prices in domestic as well as global markets. It has 20-year deals to buy about 5.8 million tonnes of US LNG every year.

On the back of this development, Jefferies has maintained its 'buy' stance on the stock with a target price of Rs 180 per share.

Jefferies added that the fire incident could prove to be a tailwind to GAIL's trading and petrochemical profitability in the next year.