BPCL will stand to benefit the most from the fall in cost of gas price and could save around Rs 300 crore per year on LNG, says Jal Irani of Edelweiss Financial Services.
Over the weekend, oil minister Dharmendra Pradhan said they renegotiated the pricing of liquefied natural gas (LNG) imported from Australia's Gorgon project to make the imported fuel affordable to price-sensitive domestic customers.
Post this the cost of gas for long-term supply could likely fall from USD 8.25 to USD 6.96 per mmbtu.
Discussing the impact of these on gas companies in India, Jal Irani, Oil & Gas Analyst, Edelweiss Financial Services said Petronet LNG is a pass through to contractors and is essentially a courier but the benefits will more accrued to players who have back to back agreements and contracted quantities on take or pay basis will have their losses reduced.
Gail is one of the largest buyers of LNG on take or pay basis followed by BPCL and IOC. However, this Gorgon gas is meant to come at Kochi terminal and 40 percent of the Kochi terminal offtake has been contracted to BPCL.
Therefore, BPCL will stand to benefit the most from the fall in cost of gas price and could save around Rs 300 crore per year on LNG.
Irani likes BPCL followed by IOC.
India has been trying to leverage its position as one of the biggest energy consumers to strike better bargains for its companies. In 2015 it renegotiated the LNG pricing formula with Qatar's Rasgas to buy the gas at half the original price.
GAIL also stands to benefit after BPCL because bulk of the rest of the gas is contracted with Gail. However, the very expensive gas contracted by Gail is not form Gorgon but the 5.8 million tonnes from USA. So now with Gorgon gas becoming cheaper than earlier estimated, Gail could be taking a hit from the price differential between Gorgon and US of around Rs 2900 crore per year.However, there is a possibility of Gail renegotiating the price with US as well since India is one of the largest and fastest buyer in the world.