India to Cut Domestic Rates by 18% - Domestic price cut to $2.5 per million British thermal units
- Gas price cut may hurt cash flows at ONGC, Reliance Industries
India has cut the price of locally-produced natural gas for the fourth consecutive time, tracking a global decline in rates of the fuel.
Domestic gas prices will be cut by 18 percent for the six months beginning October 1 to $2.5 per million British thermal units based on its gross heat value, the oil ministry’s Petroleum Planning and Analysis Cell said in a statement on its website. The government had fixed the price at $3.06 per million Btu for the six months ending today.
The move will dent profits at explorers such as Reliance Industries Ltd. and Oil & Natural Gas Corp., while benefiting city gas distributors and fertilizer producers. It may affect state-owned ONGC’s plans to boost domestic oil and gas output as per Prime Minister Narendra Modi’s target of cutting India’s energy imports by 10 percent by 2022.
“On a reported basis, ONGC will be in loss following the cut in gas price,” Sachin Mehta, an analyst at Centrum Broking Pvt. said, adding that his calculations indicate a pretax loss of about 60 cents per million British thermal units for the gas business. “There will still be cash profit at $0.42 per mBtu."
India sets gas prices using a formula based on U.S., Canadian, U.K. and Russian rates. The government also announced a ceiling price of $5.3 per million Btu for natural gas extracted from difficult fields that start production from this year. The cap is effective for the six months to March for fields in ultra-deep areas having high temperature or pressure.
More on this can be found here:
https://www.bloomberg.com/news/articles/2016-09-30/global-gas-prices-prompt-india-to-cut-domestic-rates-by-18