Tankers sit at the liquefied natural gas terminal, left, and a crude oil terminal. (Photographer: Annie Sakkab/Bloomberg)

India Seen Raising Natural Gas Price To Highest In Three Years: Survey

Domestic natural gas prices are expected to be hiked for the third consecutive time, boosting the earnings of state-run oil explorer like Oil & Natural Gas Corporation Ltd., and Oil India Ltd., according to a BloombergQuint survey.

The government could hike gas prices to $3.39 per million British thermal units for six months starting Oct. 1, according to the average of 14 estimates from analysts and industry experts that were compiled by BloombergQuint. Under the government’s new pricing regulation, the rates of domestically produced gas are fixed and revised every six months.

After the introduction of an administered pricing mechanism in 2014, gas prices fell by nearly 40 percent. An increase in the fuel’s price may encourage the oil public-sector undertakings to boost investment and production, helping India cut energy imports and more than double the share of gas in its energy mix.

ONGC and Oil India produce and sell nearly 80 percent of India’s gas, with private players like Reliance Industries Ltd., Vedanta Ltd., Hindustan Oil Exploration Ltd., among others, comprising the remainder. Higher gas rates would increase ONGC and Oil India’s per share earnings by seven percent and six percent, respectively, according to BloombergQuint’s calculations.

For calculation purposes, we have assumed everything other than the gas selling rate remains constant for both the upstream majors.

Though gas prices could be hiked for the third time, they’re still below ONGC’s average cost of production. The state-run oil marketer has been unable, at current price levels, to recover its total production cost—which stands at $3.59 per million Btu. The company said in its annual report that this impacts its ability to fund capital expenditure plans and future development projects.

The phenomenon will have a ripple effect on the manufacture of urea and petrochemicals, where natural gas is a feedstock. It can also pressure the margins of the power sector and the sponge iron industry, in addition to rendering compressed and pressurised natural gas dearer.