Natural gas price may skyrocket to $10, from $4.2 on C. Rangarajan formula implementation: Goldman

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Jump in natural gas price set to generate addl revenue to meet higher subsidy outgo on fertiliser. (AP) Jump in natural gas price set to generate addl revenue to meet higher subsidy outgo on fertiliser. (AP)
SummaryC. Rangarajan natural gas price formula to raise revenue to meet higher subsidy outgo on fertiliser sector.


Oil and Natural Gas Corp's (ONGC) 2-3 Tcf reserves, 4.98 Tcf of RIL and 4 Tcf of Gujarat State Petroleum Corp (GSPC) could be viable at higher gas prices, it said.

The decision, Edelweiss Securities, is "a significant positive for the sector considering that a lot of deep water resources become viable".

Of the total domestic gas volume of about 86 million standard cubic meters per day, three key economically sensitive sectors - power, fertiliser and LPG - consume about 67 mmscmd. "We see additional burden for them of Rs 19,700 crore or 0.16 per cent of GDP," Morgan Stanley said.

"If this (burden due to higher gas price) were to be completely passed on to end consumers, we believe electricity tariffs for a gas-based plant need to be moved about 45 per cent higher. The required increase in urea prices would be over 60 per cent," Morgan Stanley said.

ICICI Securities said sectors like power and fertiliser tend to avoid high-cost gas as an input due to systemic compulsions that restrict pass-through of costs.

"On domestic gas price hike, these sectors would now be forced to align themselves to a higher gas price base," it said.

It estimated that ONGC will get Rs 16,400 crore in additional revenue and Rs 9,700 crore more profit in 2014-15 on a the projected sales of 59.5 mmscmd of gas.

State-owned Oil India will get Rs 2,000 crore on 9.1 mmscmd of production, while Reliance will garner additional revenue of Rs 3,400 crore on an output of 20 mmscmd.

Kotak Institutional Equities estimated increase in ONGC's pre-tax profit by Rs 13,300 crore at a gas price of USD 8 and Rs 20,300 crore at gas price of USD 10. Increase in its post-tax profit will be Rs 8,800 crore at USD 8 gas price and Rs 13,400 crore at USD 10.

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