LPG, NGV price float a blessing for PTT

Floating the prices of liquefied petroleum gas (LPG) and natural gas for vehicles (NGV) could give listed companies minimal trouble and yield benefits for PTT Group by easing its losses amid declines in global oil prices, analysts said.
Sukit Udomsirikul, senior vice president for retail strategy at SCB Securities Co, said the impact from the planned rises in fuel prices on the transport industry would not be as bad as expected, as the policy was known two to three years ago.
Besides, the increase would be taken in steps of Bt0.75 per kilogram per month, reducing any problems that may arise, as users can change to other fuels like NGV, he said.
PTT could even come out ahead.
If the LPG price rises, PTT will see a narrower price differential for the product. Every 10-per-cent rise in the LPG price will increase PTT’s profit by 2 per cent.
Pichai Lertsupongkit, executive vice president for research at Thanachart Securities Co, said PTT Group would likely see greater profit and cash flow, even though the revamped pricing will add to the costs in the petroleum business. PTT shoulders a burden of more than Bt10 billion a year.
However, the planned increases in LPG and NGV prices will likely give less worry to listed companies, as large companies tend to use coal as fuel because of its lower price.
An analyst at Kiatnakin Securities Co said the price adjustment would likely reflect the real cost for PTT Group in 2012 and it could turn to profit in 2013. Currently, PTT sells NGV at Bt8.50 per kilogram and is compensated Bt2 per kilogram from the Oil Fund. However, the combined amount is still less than the real cost.
Currently, NGV’s global reference price is Bt14.70. PTT recorded a loss of Bt2.3 billion from NGV sales in the second quarter of this year.
The NGV price is scheduled to go up by Bt0.50 a month for 12 months and the domestic price will likely reflect the real price by August or September next year.
Chaiyaporn Nompitakcharoen, executive vice president at Bualuang Securities, said the listed companies surveyed by the company did not receive impacts from the price float.
Most outside the stock market would likely weather the price increases, he said.
The retail NGV price could stay in a range of Bt14-Bt15 a kilogram, close to the break-even point of PTT.
However, it is too soon to estimate any impact from the price float on PTT’s profit, according to Bualuang Securities’ research.
The energy sector’s net profit for next year has been revised downwards 1-3 per cent because of the fall in the Dubai crude price, narrower spread for BZ condensate and decreasing demand for natural gas, according to research by Capital Nomura Securities, which covered 10 companies in the sector.
Demand for energy is expected to continue to grow and new supply has been delayed. Some products are expected to have small excesses or tight supplies, which could drive up prices and spreads of products in two years.
Although global economic risks remain, Nomura continues its bullishness on the energy sector, given its expected strong growth. The sector’s normalised profit and net profit are projected to grow on average at 17 per cent and 19 per cent next year.
Earlier, executives at Siamgas and Petrochemicals Plc said the price float would likely dampen demand for LPG in the initial period.
In the long term, demand for LPG is expected to be high, compared to bunker oil, whose price is close.
LPG is a cleaner energy source than bunker oil, which emits pollution after burning, and is required by some industries. Converting machines from LPG to bunker oil is also not worth the investment.
More than 10 per cent of Siamgas’s sales are for industry and more than 60 per cent for households. Both markets are expected to grow.