InvestorQ : How do you see the impact of the sharp cut in natural gas prices by the government?
Niti Shenoi made post

How do you see the impact of the sharp cut in natural gas prices by the government?

diksha shah answered.
3 years ago

Like in any case in the past, any cut in gas prices would be negative for the gas producers like ONGC and OIL and positive for the users of gas fired power and fertilizer plants. But first a look at how the gas price changes panned out on 30 September.

On the last day of September, the government announced a sharp cut in natural gas prices which will work against ONGC and Oil India. The price for regular gas has been cut by 25% to $1.78 per mmBtu for the Oct-Mar period as against $2.39 in the Apr-Sep period just got over.

The gas prices are set by the government once every 6 months and that is applicable for the next 6 months period. The Oct-Mar prices are set in end of September and the Apr-Sep prices are set in the preceding March, as is the normal practice.

The price set for regular natural gas is substantially lower than the difficult to drill assets. However, this time around, even the price of gas from deepwater and the ultra deepwater wells has been cut by 28% to $4.06 per mmBtu in line with falling Brent prices globally.

This dip in natural gas prices, on paper, is likely to benefit the fertiliser, electricity and CNG sectors. However, the big question that remains is that whether the user industries will really benefit from the price cut if the demand remains so tepid.

The other argument is that remunerative price is essential if the share of natural gas in the overall fuel mix has to go up. That has not happened in the past and that is one reason gas fields are not producing to the full extent.