India’s ONGC, reliance seen getting relief from gas price cuts

India’s domestic gas prices may stop falling for the first time two years, a welcome relief for the country’s energy explorers.

The price for the April-September period will probably be set at $2.58 per million British thermal units, near the current $2.50, according to the median of 10 responses in a Bloomberg survey of industry participants. The government sets the rate every six months and an announcement on the price is due next week.

Gas prices in India have more than halved after four successive cuts since the formula was introduced in November 2014. That’s squeezed margins of explorers such as Oil & Natural Gas Corp. and billionaire Mukesh Ambani’s Reliance Industries Ltd., while benefiting users including fertilizer companies and power generators. The forecasts compiled by Bloomberg range from $2.50 to $2.70.

“Gas prices globally are weak, which will reflect in the price revision from April 1,” according to Harsh Dole, a Mumbai-based analyst at India Infoline Ltd. “I don’t expect gas prices to move up significantly anytime soon.”

For ONGC, the country’s biggest gas producer, every $1 change in the price impacts annual revenue by 42 billion rupees ($640 million) at the current rate of production, according to Director Finance A.K. Srinivasan. ONGC’s gas output in the 11-month period ended February was about 60 million cubic meters a day, more than 69 percent of the country’s total.

“ONGC’s average cost of production for all blocks put together is about $3.50,” according to Vaibhav Chowdhry, an analyst at K.R. Choksey Shares and Securities Pvt. “The low prices will continue to hamper their margins. They at least need a price of more than $3.50 to break even and recover their costs.”

The government allows a higher tariff of about $5.30 per million Btu for gas recovered from some deep-water fields under a policy change to encourage companies to tap difficult deposits. That price is also due to be revised from April 1.

The current gas-price formula is based on U.S., Canadian, U.K. and Russian rates. Reliance spokesman Tushar Pania and oil ministry spokesman Rahul Gowlikar didn’t respond to emails seeking comments.

About BloombergNEF

BloombergNEF (BNEF), Bloomberg’s primary research service, covers clean energy, advanced transport, digital industry, innovative materials and commodities. We help corporate strategy, finance and policy professionals navigate change and generate opportunities.

Available online, on mobile and on the Terminal, BNEF is powered by Bloomberg’s global network of 19,000 employees in 176 locations, reporting 5,000 news stories a day.
 
Sign up for our free weekly newsletter →

Want to learn how we help our clients put it all together? Contact us