TNB’s maiden delivery of LNG from third party saves costs

Tenaga Nasional Bhd (Oct 4, RM13.52) Maintain buy with a fair value of RM15.80: Tenaga Nasional Bhd (TNB) announced that it had taken the maiden delivery of 3.5 trillion British thermal units of liquefied natural gas (LNG) from another party and not Petroliam Nasional Bhd (Petronas). TNB brought in its maiden LNG cargo via the regasification terminal and peninsular gas utilisation gas pipeline network owned by Petronas Gas Bhd. The LNG gas is to be consumed within 14 days by TNB’s power plants in Port Dickson, Negeri Sembilan and Connaught Bridge, Klang.

The objective is to test out third-party access to fuel such as gas. Incidentally, this is one of the energy reforms proposed by the government whereby power producers would be free to buy fuel from whoever they want.

TNB has also signed an agreement for the delivery of gas from Shell Malaysia. TNB said this had resulted in real cost-savings as the gas price is lower than the regulated gas price.

We view this development positively although the amount of cost-savings was not disclosed.

We believe that the amount of fuel sourced from third parties is still small for now and any savings may not be significant yet.

In the long term, any cost-savings, for example fuel costs, which are lower than the reference prices in regulatory period 2 or RP2, should translate into tariff rebates for industrial and commercial users. The objective of the energy reforms is to drive down energy production costs which hopefully would translate into lower tariffs for consumers. — AmInvestment Bank, Oct 3

Source: TheEdgeMarkets