CNG and PNG prices to dip after cut in natural gas prices
The latest 18% cut in domestic natural gas prices to $3.82 per unit by the government could lead to a reduction in Compressed Natural Gas (CNG) prices by upto Rs 3 per kg and Piped Natural Gas (PNG) prices by Rs 2.3 per unit, according to research and ratings agency India Ratings.
CNG is currently priced at Rs 38 per kg in Delhi while PNG costs Rs 25.37 per standard cubic meter (scm). “India Ratings expects the benefit of lower gas prices to continue to be passed on to the consumers. It further expects Rs 2.1-2.3 per scm cut in PNG prices and Rs 2.8-3.0 per kg cut in CNG prices,” the Fitch Group entity said in its special report on the gas price revision.
Between April and September 2015, the price of diesel, the alternate fuel for CNG, declined by 8% to Rs 44.45 per liter while CNG prices remained unchanged. This made CNG less competitive against diesel. The expected CNG price reduction would make the clean fuel upto 45% more competitive than diesel. Similarly, PNG would be 2% more competitive than subsidized LPG.
India Ratings also expects the two major domestic gas producers – Oil India Limited (OIL) and Oil and Natural Gas Corporation Limited (ONGC) – to face a revenue decline of Rs 120-130 crore and Rs 1,080-1,150 crore, respectively, on gas sales during the second half of the current financial year as the prices are reduced by 18%.
A senior ONGC executive had on Wednesday said the gas price cut would impact its profit by Rs 1,059 crore. In the mid-stream segment, Gail (India) Limited would see Rs 1790-1900 crore lower trading revenue from the sale of domestic gases during October 2015 to March 20126.
The ratings agency also said it expects the benefit from reduced gas price would be partly offset by the near 6% rupee depreciation over April 2015 to September 2015. The net impact of the reduced domestic gas prices in rupee terms would be nearly 11-16%.
This is the second domestic gas price reduction and is driven by the decline in average gas prices prevalent at the reference hubs over the period July 2014-June 2015.
The first downward price revision was to $4.66 per million british thermal unit (mmbtu) from $5.05 per mmbtu on 1 April 2015. The average Henry Hub gas prices declined to $3.33 per mmbtu from $4.35 per mmbtu over January-December 2014.
