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Domestic natural gas prices set to hit record high amid Russia-Ukraine crisis

In the latest revision in September 2021, the government had raised natural gas prices by 60 percent to $2.9 per mmBtu for the October-March period.

New Delhi / March 28, 2022 / 11:01 AM IST
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The government-determined price of natural gas is likely to more than double to $6.5 per metric million British thermal unit (mmBtu) later this week, which will the highest on record since the formula-based pricing mechanism came into effect in 2014, brokerage firm Antique Broking said in a note.

The government revises the price after an interval of six months. In the latest revision in September 2021, it had raised prices 60 percent to $2.9 per mmBtu for the October-March period.

The staggering rise in prices would likely result from a global rally in natural gas since the invasion of Ukraine by Russia in February. Prices in the US have soared 50 percent so far this year, and in Europe have risen 44 percent in the same period.

The surge came as several western economies imposed severe sanctions on Russia.

The domestic gas price formula is a volume-weighted average price of key hubs of the US, Russia, Europe and Canada.

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More than doubling of prices is likely to boost two of the biggest gas producers Oil & Natural Gas Corporation and Oil India. The surge will also lift Reliance Industries' joint venture with BP, which has seen a ramp-up in production from the KG basin.

The increase in prices, however, will be negative for domestic city-gas distributors (CGDs) who have seen tremendous pressure on margins owing to higher gas rates and possess limited ability to pass on higher costs to consumers.

Analysts said that there have likely been representations from the CGD sector to moderate the increase of the price hike that led to concerns that the government may make an exception given the strenuous impact on consumer wallets of the surge in pump fuel prices.

“We believe that the concerns are unfounded, at least for this round of price revision,” Antique Broking said.

In terms of the earnings benefit for ONGC and Oil India, Antique Broking expects a 26 and 30 percent growth in revenues for the two companies respectively in the first half of the next financial year starting April 1.

At 10:34 am, shares of Oil India and ONGC were up 0.3 percent and 0.4 percent respectively on the National Stock Exchange.

Disclaimer: The views and investment tips expressed by investment experts on Moneycontrol.com are their own and not those of the website or its management. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.

Disclosure: Moneycontrol is a part of the Network18 group. Network18 is controlled by Independent Media Trust, of which Reliance Industries is the sole beneficiary.



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first published: Mar 28, 2022 11:01 am
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