Moody's: Plant shutdown is credit-negative for PTT and PTTGC

GSP#5 is the gas supplier of PTTGC’s I4-2 olefins plant. It was shut down last Wednesday after a lightning strike damaged its waste-heat recovery unit. PTT estimates that repairs will take three to five months to complete.

“We do not expect the shutdown to have a material financial impact on PTT, because the company has insurance coverage which should partially absorb the cost of repair, in addition to the cost of business interruption,” said Simon Wong, a Moody’s vice president and senior credit officer. 

“Moreover, while PTT’s gas revenues and margins in the third and fourth quarters of this year will be squeezed because of the temporary closure, we expect its credit metrics to stay within the parameters of its current rating,” added Wong, who is also the lead analyst for both PTT and PTTGC.

Moody’s said the impact of the operational disruption on PTT’s reputation would depend on how long it takes the company to resolve the situation by successfully sourcing alternative gas supplies to minimise the inconvenience to end users.

The company plans to sell unprocessed natural gas to power producers. It does not expect to face any negative financial repercussions from its end users – such as penalties – because of the force majeure nature of the shutdown.

GSP#5 – which separates natural gas into gas products – is one of PTT’s six gas-separation plants and contributes one-fifth of the company’s combined processing capacity of about 2.74 billion standard cubic feet per day.

Its gas separation plants mostly produce methane, which is sold mainly to power producers. The other products – ethane, propane, liquefied petroleum gas (LPG) and natural-gas liquids – are sold to PTT’s affiliated petrochemicals and refining businesses including PTTGC, as well as to industrial users.

“In terms of the financial impact of the shutdown on PTTGC’s net profit, the company estimates that it will lose no more than Bt400 million a month or Bt1.8 billion in 2013, which will not have a material negative impact on its full-year results,” Wong said.

PTTGC reported full-year net profit of Bt34 billion in 2012.

In addition, the negative financial impact on PTTGC will be partially cushioned by the higher refining margins recorded so far in the third quarter, compared with the previous quarter. “PTTGC also plans to divert LPG produced from its own refinery to its olefins plant to minimise the impact of the shutdown at PTT’s factory. Moreover, PTTGC will reallocate available gas feedstock to its olefin crackers,” Wong said.

Because GSP#5 supplies gas products to PTTGC’s I4-2 olefins plant – which has a production capacity of 450,000 tonnes per year – the utilisation rate of its olefin cracker is expected to decline in the second half, from 95 per cent in the first half. Nonetheless, its low-density polyethylene facility, which has a capacity of 300,000 tonnes, is under scheduled maintenance until October, which will reduce the ethane it would have required in the third quarter.

“In addition to seeking alternative sources of gas feedstock for its olefins plant, we expect PTTGC to re-optimise internal feedstock allocation at its olefins plant and increase the proportional use of naphtha in place of gas feedstock. However, this substitution will result in higher feedstock costs and reduce its profitability,” Wong said.