In what would significantly impact the margins of companies including Reliance Industries (RIL), ONGC and Oil India (OIL), the government on Wednesday announced a steep 18% reduction in the price of domestically produced natural gas with effect from Thursday.
A notification issued by the Petroleum Pricing and Analysis Cell (PPAC) said that the price of domestic natural gas would be $3.82 per mmbtu on gross calorific value (GCV) basis.” Mmbtu or mbtu stands for million British Thermal Units, a measure of energy.
The price based on net calorific value (NCV) basis would come to $4.24 per mbtu. This price would remain effective till March 31, 2016.
On April 1, the government notified a price of $4.66 per MMBTU on GCV basis.
While the steep price cut could force upstream companies such as RIL and ONGC to cut back on their exploration plans, jeopardising the government’s push to reduce India’s energy imports by producing more oil and gas domestically. Downstream users of natural gas including power and fertiliser plants, on the other hand, would benefit from the lower costs as gas forms their primary raw material.
This is the second time since then that the price of natural gas has come down as a result of falling international gas price. Between November 2014 and April 1, 2015 the notified price was $5.05 per mmbtu on GCV basis.
At close of trade on Wednesday, RIL was at Rs 860.50 per share, up 2.54%, while ONGC also rose 1.35% to Rs 229.50. The stocks did not react negatively to the reduction in prices as the price revision was on expected lines due to the global slowdown in energy demand.