Gas price hike may benefit ONGC, Oil India: ICICIdirect.com

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26 Aug, 2025 12:21

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The government has finally notified the guidelines for pricing of domestically produced natural gas. This move will increase the price of natural gas to USD8-8.4/mmbtu (currently USD4.2/mmbtu) from April 1, 2014. The gas price hike will be applicable to RIL, ONGC/OIL nominated fields (APM gas), CBM and shale gas. The gas pricing is based on the formula submitted by the Rangarajan committee recommendations, which will be valid for five years. The price review will happen on a quarterly basis.

The gas price is derived from a formula where one price is derived from the volume-weighted average net back price to producers at the exporting country well-head for Indian imports for trailing 12 months. The other is the volume-weighted average price of US’ Henry Hub, UK’s NBP and JCC prices for trailing 12 months. The price of USD8-8.4/mmbtu, thus computed, is the average of the two price estimates.

ONGC and Oil India would be the major beneficiaries of this price hike as they are the largest producers of APM gas. The benefits for these two companies include higher realisations and investments in deepwater gas discoveries turning viable, thus leading to higher investments in offshore gas discoveries and higher gas production in future. We have conservatively modelled a gas price of USD6.3/mmbtu till the implementation takes place. As natural gas is the raw material for gas distribution companies, it will have a negative impact on them. We have already factored this in our earnings estimate.

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