India lowers domestic gas prices by 18%, citing global energy slump

By DEBJIT CHAKRABORTY and ABHISHEK SHANKER
Bloomberg

India reduced the price of locally produced natural gas by 18% for six months beginning Oct. 1, hurting producers including Oil & Natural Gas Corp., Oil India and Reliance Industries.

The price will be cut to $3.82/MMBtu based on the gross heat value, according to the oil ministry’s Petroleum Planning and Analysis Cell. Rates were fixed at $4.66/MMBtu for the last six months.

The price based on the net heat value will be $4.24, an oil ministry official, who asked not to be identified because of rules, told reporters on Wednesday in New Delhi.

The reduction will squeeze profit margins at explorers such as Reliance Industries and state-owned ONGC, while benefiting power producers and fertilizer makers. Low prices may deter exploration companies from investing and increasing output, essential for Prime Minister Narendra Modi’s target of cutting India’s dependence on imported energy to 50% by 2030 from 80% now.

“The gas prices may remain muted at these levels in the near future unless there are sharp changes in global benchmark prices,” said Deepak Pareek, an analyst at Sunidhi Securities & Finance. “The drop will benefit city gas distribution companies and also retail consumers, who may have to pay less. Lower prices were expected and factored into the stock prices of the biggest producers like ONGC.”

Shares of Indraprastha Gas, a city gas distributor, rose as much as 8.3% to 498.70 rupees, the most since July 1, and traded at 485.85 rupees as of 12:12 p.m. in Mumbai. Rival Gujarat State Petronet, which serves consumers in the western state of Gujarat, rose as much as 3.2%. Gas producers ONGC and Oil India fell as much as 1.9% and 3.6% respectively, while Reliance rose 1.2%.

In May 2010, India had set the price of gas produced from fields awarded to ONGC and state explorer Oil India at $4.2/MMBtu, based on net calorific value, matching the rate fixed for Reliance’s fields in the Krishna-Godavari basin in September 2007.

India reviews the price of gas half-yearly, using a formula capturing international trends. The gas-price formula is based on US, Canadian, UK and Russian rates. A shale production boom in the US, a slide in Russia’s ruble and a tumble in crude oil, a common index for gas rates, have depressed prices. Natural gas futures on the New York Mercantile Exchange have dropped about 37% in the past year.

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