SK Gas has been expanding its LNG-related business. Under the past year’s LNG market environment, it is estimated that SK Gas’s Ulsan GPS power plant generated average daily sales of US$2mn. Given the prolonging of the Russia-Ukraine war and the LNG supply shortage, LNG prices are likely to stay higher than LPG prices for the time being.
Economic benefits of Ulsan GPS power plant
While maintaining a Buy rating, we lower our TP on SK Gas from W180,000 to W150,000. In light of anticipated sales from the Ulsan /LPG combined cycle power plant (operations to start from 2H24) and KET LNG Terminal venture, we stick to a Buy rating. However, we lower our TP to reflect a 6% cut in our 12-month moving average EBITDA and a W200bn increase in net debt.
The Ulsan GPS power plant will use both LNG and LPG as fuel. Based on historic 12-month spot price trends, sales from using a combination of LNG and LPG as fuel are estimated to reach US$900mn per month, with daily average sales of US$2mn and maximum sales of US$7mn. Of note, the plant should show no difference in operation efficiency when running on either LNG or LPG.
In general, as the main consumers and required facilities for LNG and LPG differ, it is not easy to convert between the two fuels. Accordingly, the price of LPG has remained relatively subdued during the LNG price surge. That said, noting: 1) the prolonging of the Russia-Ukraine war; 2) LNG supply shortage issues during winter; and 3) the full-fledged start of operations at liquefaction plants in the US from 2025, we believe there are ample /LPG-related arbitrage trading opportunities.
3Q22 preview: Earnings to come in sounder than feared
We forecast 3Q22 consolidated sales of W2,206.7bn (+22% y-y) and OP of W40bn (+12% y-y), with earnings meeting consensus.
Source: Business Korea
