Markets: Eerie calm

Markets: Eerie calm

it is not clear when market sentiment can change; as in the past, it can be quite sudden.
At a turn and yet not

At a turn and yet not

RBI could be tempted to cut policy rate to support growth at its bi-monthly review.

Natural gas price hike uncertainty to upset investment plans

Mar 26 2014, 12:11 IST
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Gas price hike uncertainty will also disrupt fuel matrix, jacking up costs of consumer industries like fertiliser. Gas price hike uncertainty will also disrupt fuel matrix, jacking up costs of consumer industries like fertiliser.
SummaryNatural gas price hike uncertainty will also disrupt fuel matrix, jacking up costs of consumer industries.

THE uncertainty created by Election Commission’s postponement of natural gas price hike till the polls are over could not only hamper the investment plans of exploration and production (E&P) companies, but also disrupt the country’s fuel matrix, jacking up costs of consumer industries like power and fertiliser.

State-run explorer ONGC’s output expansion plans are contingent on how vigorously it can pursue the cost-intensive deep water blocks. If the gas prices are remunerative, * Oil & Natural Gas Corpn, which already shoulders a heavy burden of the subsidies on petroleum products, may have to re-draw its E&P road map. That, coupled with private players like Reliance Industries and BP turning cautious, could cost the country dear — in terms of costlier fertilisers and power and potential unsustainable strain on government finances.

If the Rangarajan formula approved by the government in June 2013 and pricing guidelines issued in January 2014 were to be implemented, gas price price would have nearly doubled from $4.2/mBtu at present. The revised price was to be effective from April 1.

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ONGC was expecting an addition of R2,400 crore annually in its profit after tax (PAT) for every one dollar increase in gas price. Chairman and managing director Dinesh K Sarraf told FE that he was still optimistic and expressed the hope that the new gas pricing regime would be in place not later than three months from now.

Sarraf’s predecessor Sudhir Vasudeva, who retired on February 28, has drawn up a ‘Perspective Plan 2030’ to invest R11 lakh-crore over the next 18 years to more

than double the firms’ hydrocarbon output.

According to the country’s largest explorer, even a higher gas price of about $8/million British thermal units (mBtu) is not enough to monetise more than dozen hydrocarbon finds across its fields. For example, ONGC found two gas discoveries in the Mahanadi Basin. But it can take out gas from them only when the price is at least $11/mBtu that accounts to 10 per cent return on equity.

“Commodity (gas) price is key to decision making. Global explorers would not be interested (in investing in India) if gas price stays at $4.2/mBtu as they would have several other choices. India will have to give a fiscal regime that is conducive for oil and gas business,” said Dilip Khanna, partner (transaction advisory services)

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