India Raises Gas Prices First Time In More Than Two Years

The government increased the domestic price of natural gas for the second half of the ongoing fiscal, tracking the global surge in energy costs.

Gas under the administrative price mechanism will cost 62% higher, at $2.9 per metric million British thermal units, for October 2021-March 2022, according to Petroleum Planning and Analysis Cell. Most brokerages had expected the new price to be a little over $3.

This is the first hike since April 2019. Revised prices are applicable from Oct. 1.

The price of natural gas produced from deepwater and ultra-deepwater discoveries, and high-pressure and temperature (difficult) fields has been raised by 69.3% to $6.13 a unit.

That comes as international gas benchmarks have surged. India’s administered price is based on a formula that considers the volume-weighted annual average of US Henry Hub, Canada Alberta gas, UK NBP, and Russian Natural Gas with a lag of one quarter. The rate is revised semi-annually.

In the year through June 30, the prices at Henry Hub and Canada Alberta more than doubled, while UK NBP gas surged 5.6 times, according to Bloomberg data.

Energy prices have risen in the past few months due to high summer temperatures that stoked demand for gas-driven power in China, low inventories, strong demand in Asia, recovery in Europe, and insufficient supplies from exporters like Russia and Australia. The commodity is unlikely to cool in the next few months because of the upcoming winter in the northern hemisphere.

Impact On Oil & Gas Firms

The increase will prove favourable for Oil and Natural Gas Corp., Oil India Ltd., and Reliance Industries Ltd. Emkay estimates that for every $1/mmbtu change in administered gas prices, ONGC and Oil India’s estimated earnings per share for FY23 rise Rs 2.3 and Rs 4.0 per share, respectively.

City gas distributors, however, are likely to face margin pressure. According to ICICI Securities estimates, Gujarat Gas Ltd., Mahanagar Gas Ltd., and Indraprastha Gas Ltd. need to hike CNG prices by 49-53% in the year after October 2021 to pass on rising costs and maintain margins.

An Emkay Global report estimates that for every $1/mmbtu rise in gas prices, Indraprastha Gas needs to increase CNG retail price by Rs 4.7 a kg to maintain gross margins.

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