Despite price hike, gas production remains loss-making proposition in India: ICRA
Even at these prices, gas production remains a loss-making proposition for most fields for the Indian upstream producers.
New Delhi: The government may have raised the price of domestic natural gas price by 62 per cent from the existing $1.79 per million British thermal units (mmbtu) to $2.9 per mmbtu but gas production will remain a loss-making proposition for most fields and there will be limited benefit for producing companies, according to ratings agency ICRA.
“Increase in gas prices provides limited relief to Indian upstream producers. Even at these prices, gas production remains a loss-making proposition for most fields for the Indian upstream producers notwithstanding some decline in oil field services or equipment costs,” ICRA said in a report.
This apart, the depreciation of Indian Rupee against the US Dollar would aid the realisations of the gas producers but only to a modest extent, the agency said, adding the ceiling on price for gas produced from deep water, ultra-deep water, high temperature and high-pressure fields has been announced at $6.13 per mmbtu for the period H2 FY2022, which is 69.3 per cent higher than the price ceiling of $3.62 per mmbtu for the period H1 FY2022. “Domestic gas prices still remain low at an absolute level leading to poor returns for Upstream producers. The absence of a floor and sustained low prices as has been seen in the past few years post implementation of the modified Rangarajan formula make exploration and production unviable even for benign geologies,” said Sabyasachi Majumdar, Senior Vice President, ICRA.
He added that accordingly increase in natural gas prices provide limited relief for the Upstream sector vis-a-vis profitability and cash accruals and the demand for a floor for gas price as petitioned by the incumbents in the past would only intensify.
The latest domestic gas price increase for the six months period beginning October 2021 was driven by the significant run up in the prices of gas at global gas hubs.
Gas prices have risen to multi year highs owing to supply side issues due to planned and unplanned shutdowns, low storage levels in Europe, US etc, lower wind and hydro power generation due to still weather and droughts respectively amid increasing demand due to economic recovery and multiple events of severe weather in several parts of the world especially Asia which accounts for three quarters of the world’s LNG consumption.