Hiking gas price would require further discussion, said oil minister Dharmendra Pradhan after market hours on Wednesday. “The whole issue as well as the guidelines (for the price hike) requires a comprehensive discussion. We will have a dialogue with all stakeholders. There is a need to take care of public interest,: Pradhan added.
ONGC ended 5.9% lower at R411.10. Petronet LNG (-4.7%), HPCL (-4.3%), IOCL (-4%), RIL (-3.7%), Cairn India (-1.4%), Gail (-1.6%), BPCL (-2.2%) and Oil India (-3.1%) were other major losers.
BSE Oil & Gas was the biggest loser on Thursday, registering a 3.9% decline. In year-to-date, BSE Oil & Gas has gained 24.3%. The benchmark Sensex fell 251 points, its biggest drop in six days, to end at 25,062.67.
Experts believe gas prices are poised for a hike. “The government will have to hike the prices, otherwise there will be no incremental production in the country. But we feel the hike will be below the expectations of $8/mmbtu,” said an analyst with a leading domestic brokerage. The natural gas is currently priced at $4.2/mmbtu.
The previous government had approved the gas price hike to $8/mmbtu, based on the formula worked out by the Rangarajan panel. Brokerages believe that the new government could take the route of a gradual increase and give subsidy relief to upstream companies to offset the impact of a gradual hike.
“We believe the government could prefer a gradual increase or a marginally lower price hike to allow consumers time to adjust to rising gas prices,” Deutsche Bank said in a recent report. “The government could lower upstream share in fuel subsidies from FY15 itself (our base case: 65%), raising net realisation on crude oil for ONGC & Oil India and negating the short-term adverse impact of lower gas prices,” the report added.
While gas price hike is yet to take place, the sector has been facing headwinds from the spike in Brent crude due to the violence in Iraq. Since June 6, the BSE Oil & Gas has slipped 8.4%. Brent crude was trading at $113.6/barrel at 6 pm IST on Thursday. Experts say India’s upstream companies remain vulnerable as under-recoveries could rise. “If the Iraq situation escalates and if the oil markets become more volatile, India’s upstream PSU companies are at maximum risk,” BNP Paribas said in a recent report.