Domestically produced gas price likely to see upward revision come April

Domestically produced gas price likely to see upward revision come April

From April 1 the price of domestically produced gas is expected to rule higher on the back of an upward trend across different international hubs, including the indices used as benchmarks.

The six-monthly revision in government-stipulated prices of domestic gas is likely to boost the revenues of public-sector explorers and producers Oil and Natural Gas Corporation Ltd (ONGC) and Oil India Ltd (OIL) as well as private players including Bp-Reliance Industries.

“A $1 rise in the price per mBtu (million British thermal unit) will boost annual profit before tax by ₹4,300 crore for ONGC and ₹550 crore for OIL,” said Prashant Vasisht, Vice President and Co-Head, Corporate Ratings at ICRA Ltd.

In the last revision in October 2020, the price had sunk to a record low, having consecutively fallen for three turns amid the coronavirus pandemic. It currently stands at $1.79 per mBtu. For the production from discoveries in deepwater, ultra deepwater, and high pressure-high temperature areas, the government dictates a price ceiling, which is currently at a record low of $4.06 per mBtu.

 

Both public-sector and private oil and gas companies have long campaigned for changing the pricing formula, which uses low-priced international benchmarks from gas-surplus economies such as the US, Canada, Russia and the UK.

“The indices used are irrelevant and need to be changed. This is one of the main reasons why investors are not interested in India,” said Deepak Mahurkar, Partner, PwC. The government has been courting international oil and gas majors to invest in the domestic upstream industry as the potential for gas production is believed to exist in deep-water and ultra deep-water areas, to exploit which international expertise is crucial.

Meanwhile, a number of private producers have found workarounds to evade the price ceiling. “An affiliate will often buy the gas from the producer and further sell to other companies to circumvent the ceiling,” Vasisht added. Last month, following the example of Reliance, ONGC too floated a gas subsidiary to buy its own production.

This article is auto-generated by Algorithm Source: www.thehindubusinessline.com

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