ONGC Expects Domestic Gas Prices To Rise 50-60% In Second Half Of FY22
Oil and Natural Gas Corp. expects gas prices to rise this year, helping boost its margins.
“On gas prices, the worst is behind us,” Subhash Kumar, chairman of the state-run oil and gas explorer, told analysts on a conference call, adding he expects domestic gas prices under the administrative pricing mechanism to rise by around 50-60% in the second half of the ongoing fiscal.
Gas prices fell by over half between the first half of FY19 and the first half of FY22 and are expected to rebound when they’re fixed every six months under the mechanism, in October.
Brokerages concur. While ICICI Securities estimates APM gas price to be fixed at $3.15-4.7 per metric million British thermal units in the second half of the ongoing fiscal, Emkay Global expects it to rise by 58% to $2.8 per mmBtu.
ONGC’s gas realisation declined 39.6% in FY21. And its current gas prices are substantially lower than its production cost of $3.7 per mmBtu, according to a recent Bloomberg report.
The APM gas price is based on a formula that considers the volume-weighted annual average prices of four global benchmarks—U.S. Henry Hub, Canada Alberta gas, U.K. NBP and Russian Natural Gas—with a lag of one quarter. The price arrived from such a formula is revised bi-annually. The prices of Henry Hub, U.K. NBP and Canada Alberta rose 132%, 478%, and 95.6%, respectively, in the last year, according to Bloomberg data.
Prices of domestic APM natural gas have fallen over 64% since the advent of the new formula according to the New Domestic Gas Policy- 2014. The current APM gas price stood at $1.79 per mmBtu whereas the price for gas produced from difficult fields stood at $3.62 per mmBtu.
Rise in international LNG prices and other gas benchmarks, too, is expected to support an upward revision in APM prices. The benchmark Japan Korea Marker has risen over 5.6 times over the last year to $12.62 per mmbtu in June 2021, according to Bloomberg data. Factors like severe winter in Northeast Asia in January that led to a demand spurt for the fuel, outages at several liquefaction plants, transit delays for U.S. cargoes at the Panama Canal, and LNG carrier shortage have led to increase in LNG prices.
LNG prices fell in March from their highs in January but have rebounded since April. “Low gas inventories in North Asia and Europe (at three-year low) due to cold winters and outages at LNG export plants, have meant the two regions are competing with each other for supply thereby, leading to a surge in both European gas and Asian spot LNG prices,” a recent report by ICICI Securities said.