Government to take Rs 800 crore hit after gas price cut

Government to take Rs 800 crore hit after gas price cut

A day after natural gas prices were cut by 16 percent, CNG and piped cooking gas rates in the national capital region were Thursday reduced by 80 paise per kg and 70 paise per unit respectively. The Obama administration recently announced that carbon emissions from the electric power sector this April were the lowest in 27 years..

India Ratings and Research (Ind-Ra) expects the benefit from reduced gas price to be partly offset by the near 6 per cent rupee depreciation over April-September 2015.

On a net calorific value basis, the price has been cut to $4.24 per mmBtu from $5.5 at present. Rates were fixed at $4.66 per million Btu for the last six months. Their benefit will be even more if they decide not to pass on the benefit to end consumers. The volume of gas consumed in the corresponding markets weights the prices. Volumes will be driven by competitiveness of CNG versus petrol/diesel and convenience of usage of PNG in domestic households. “GAIL and GSPL shall gain marginally”, Jal Irani, analyst with brokerage Edelweiss Securities, said. Indraprastha Gas, will be the biggest beneficiary. India’s benchmark Sensex rose 1.46% to 26,154.83 points at close of trading hours. However, the industry sources said, the producers of gas will be hurt due to the steep cut in prices. In fact, an independent report commissioned by the Patrick administration found that “as gas pipeline constraints are reduced, price spikes become less frequent, resulting in lower gas prices”. Interestingly, there will be no impact on Reliance Industries, for two reasons. 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 percent by 2030 from 80 percent now. Following the introduction of the formula, the prices went up by a third but fell about 8% in the first revision in April.

A mail sent to ONGC was not immediately answered. This is the second six-monthly revision since November when the government introduced a gas price formula linking it with worldwide prices following demands from the industry that the then prices were too low to incentivize producers. Besides, gas is a very small part of its total turnover, Irani pointed out in the note.

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