Thursday, 27 June 2013

ONGC, Oil India, RIL up after CCEA approves gas price hike

Shares of gas exploring companies like ONGC  , Reliance Industries  and Oil India  rose anything between 5-8 percent after an expert panel approved gas price hike, a move that could  boost bottomlines of these companies by atleast 10 percent.

While ONGC rose the highest at 7.63 percent to Rs 345 post the announcement, Oil India followed trend and rose 5.35 percent to Rs 603.65. Private upstream playerReliance Industries also surged over 4 percent to Rs 866.40.

The Cabinet Committee for Economic Affairs (CCEA) on Thursday night approved the Rangarajan panel's proposal to hike the natural gas price to USD 8.4 per mmbtu (metric million British thermal units) from April 1, 2014. 
The committee has further noted that Rangarajan panel's formula for gas pricing would be valid for five years and gas prices will be revised quarterly. The oil ministry in its final proposal had suggested to increase gas price to above USD 6.7 per mmBtu level from current USD 4.2 currently.

The natural gas prices have not been increased since past three years as the oil ministry faced stiff resistance from power and fertiliser ministry. Following gas price hike fuel cost of gas based power plant is likely to double and average power cost is seen rising by 16 paise per kwh.

The Rangarajan formula uses long-term and spot liquid gas (LNG) import contracts as well as international trading benchmarks to arrive at a competitive price for India. While the Rangarajan panel had recommended revising domestic gas prices every month based, the Oil Ministry changed it to a quarterly revision.

Though the average of the two currently comes to USD 6.775, the price of gas in April next year when these guidelines will come into effect would be around USD 8.42 and over USD 10 in the following year. This is because Petronet's deal with Qatar's RasGas (India's only functional long-term LNG contract) has a price-cap which lifts in January 2014, linking gas prices fully with crude.

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