Natural gas is still trading at a higher level amid a sharp surge in demand and tight demand, though slightly lower than its year high of $5.9 per million British thermal units (MMBtu) set last month and the previous peak of $6.1 per MMBtu in 2014, natural gas price is trading at $5.8 per MMBtu.
Demand jumped on economic growth from the decade plummet of Covid-19 pandemic. The upcoming winter will cause higher consumption as well. This led to higher LNG prices that could potentially impact corporates having businesses that require LNG consumption.
However, Credit Suisse has no concerns on Thailand and Thai companies regarding the surge in imported LNG prices, saying the increase has a limited impact as spot LNG accounted for about 2% of total gas supply and imported LNG accounted for 17% of Thailand’s supply.
To emphasize its statement, Credit Suisse pointed out that gas prices in Thailand are driven by a formula, which is linked to fuel oil prices with a time lag, while LNG prices are based mostly on contract prices.
Despite high LNG prices, Credit Suisse expects the rising oil prices will be positive for PTT Exploration and Production Public Company Limited (PTTEP) as oil accounted for about 30% of the company’s sales volume and prices are linked to global spot prices. Better earnings momentum is expected in 2H21 due to rising oil prices and scheduled gas price adjustments in October.
PTT Global Chemical Public Company Limited (PTTGC) will benefit from high oil prices as well, but Credit Suisse is not positive about its 2022 outlook due to 1) petrochemical demand (China production curb) and 2) cyclical high margin may not occur again in 2022. Still, the increase in share price should continue for a few months on high oil prices.
Meanwhile, Credit Suisse sees limited upside for PTT Public Company Limited (PTT) given 20% holding company discount (vs 24% currently).
Additionally, Credit Suisse believes that PTT Oil and Retail Business Public Company Limited (OR) will Underperform, seeing marketing margins would be lower at higher level of oil prices.