After the government passed several key recommendations of Kirit Parikh’s committee, major oil and gas companies have started cutting prices of natural gas like CNG and PNG. The latest to do so would be GAIL (India) followed by Indraprastha Gas, Mahanagar Gas and Adani Total Gas. Gas price revision is likely to improve cash flow in companies.
Gayle has cut the prices of its CNG and Piped Cooking Gas aka PNG by up to in various states 7. Meanwhile, Mahanagar Gas has reduced the price of CNG 8/kg and by Domestic PNG (DPNG) 5/SCM in and around Mumbai. Too, Indraprastha Gas CNG and PNG prices cut 6 in the national capital.
along similar lines, Adani Total Gas CNG price has been reduced by Rs 8.13 per kg and piped natural gas by Rs 5.06 per standard cubic meter (SCM).
The move comes after the Government of India passed several key recommendations made by the Kirit Parikh Committee regarding pricing of natural gas produced from APM fields. These are old fields and are largely held by PSUs like ONGC. The revision in domestic natural gas prices has come into effect from 8 April. Most of the company’s price revisions in CNG and PNG have come into effect from April 9.
In a report, research analysts at ICICI Direct said, “With the implementation of this pricing, APM gas prices will be subject to a minimum and maximum price of $4/mmbtu and $6.5/mmbtu, respectively (the earlier APM price was $8.57/mmbtu) )”
Further, the brokerage noted that — the pricing formula for HPHT fields such as Reliance Industries has not been changed, while the price for April 1-October 1, 2023 stands at $12.1/mmbtu (from US$12.5/mmbtu earlier). Prima facie, the move would be beneficial for domestic gas consuming companies like IGL and MGL (80%, and 85% of volumes respectively derived from APM), while GGL would benefit to a lesser extent (~25% of volumes largely source from apm).
On the other hand, the brokerage also said that “upstream companies will see an immediate improvement in their realisations, though they remain above historical averages.”
ICICI Direct has “Buy” recommendation on five stocks in the oil and gas basket following the latest price revision in the industry. These:
1. ONGC — (Buy for TP 180) — Fall in APM prices will reduce ONGC’s net recovery by US$2/MMBtu ( 6/SCM) but will still remain above the historical average.
2. Reliance Industries — (Buy in KTP 3,050) — A fall in HPHT prices on April 1 will reduce RIL’s net realization by $0.35/MMBtu (Rs.1/SCM) but still remain above the historical average. Also, according to media sources, there is currently no mention of giving marketing freedom for its gas pricing which was also a major recommendation made by the KPC.
3. Indraprastha Gas — (Buy at KTP 463) — Revision in gas pricing will bring down gas sourcing cost of IGL 6/SCM. Assuming that the company passes on this profit to the clients, the brokerage expects their volumes going forward.
4. Mahanagar Gas – (Buy for TP 980) — This new pricing will reduce MGL’s gas sourcing cost 6/SCM. The company has already announced CNG price cut by Rs 2.5/kg. Assuming that the company will continue to pass on this profit to the clients, the brokerage expects their volumes to increase going forward.
5. Gujarat Gas — (Buy for KTP 465) — The company is also likely to benefit to some extent from this price revision, but being a major beneficiary of the fall in LNG prices and rise in crude oil prices, the brokerage expects its gains going forward Industrial volume will increase.
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