Gas price to more than double from tomorrow; APM gas price in H1FY23 seen at $6.6/unit

Come April 1, administered price of pure gas in India will more than double. Effective October, it could possibly be more than 4 instances the present degree. ‘Market-determined’ price of gas produced from ‘difficult’ fields such because the KG-D6 block in KG basin operated by Reliance-BP mix, will even see the same hike.

While these are good tidings for India’s gas producers, Reliance Industries and ONGC, as they search to ramp up manufacturing from each the present and new fields — Reliance-BP, for example, will begin manufacturing at MJ fields in KG-D6 block in the final quarter of 2022, which can almost double the block’s output — households and different non-industrial customers will bear the brunt.

City-gas distribution (CGD) corporations like Mahanagar Gas, Indraprastha Gas and Gujarat Gas, being the primary consumers of home gas, will discover their prices going up. But analysts really feel since they’ve been passing on price will increase to the customers in a calibrated method over the previous couple of weeks, the affect of costlier gas on their margins can be average in the quick time period.

A supply from CGD agency confirmed this to FE on situation of anonymity. These corporations get pleasure from appreciable pricing energy as demand for piped gas for cooking and CNG is basically agnostic to costs.

For gas-based energy, a gas price above $4.5/mmBtu (web calorific worth foundation) could possibly be prohibitive. So any delay in a corresponding tariff revision might outcome in an additional drop in their capability utilisation. The prospect of an additional discount in gas-fired energy unit’s plant load issue come at a time when elevated costs and quick provide of coal are threatening to trigger energy outages as demand peaks through the upcoming summer season.

As for fertiliser corporations, feedstock price is a pass-through, however the authorities’s subsidy burden on the soil vitamins in FY23 might enhance from the budgeted degree of Rs 1.05 trillion to Rs 1.5-1.6 trillion owing to the rise in costs of imported LNG sourced through spot purchases and long-term contracts by the LNG-terminal corporations.

Jefferies predicted that home APM gas price might rise sharply from $2.9 per million British thermal items (mmBtu) on a gross calorific worth (GCV) foundation for the second half of FY22 to $6.6/mmBtu in the primary half of FY23 and probably enhance additional to $ 9.2/mmBtu in the second half of FY23 (see chart for price estimates by ICICI Securities on web calorific worth foundation).

The authorities units the administered price of gas for regular fields each six months — on April 1 and October 1 — based mostly on charges prevalent in choose world gas markets however with a lag of 1 quarter. It stays to be seen if the federal government will intervene in the price-setting mechanism now given the large spike in costs and its potential to stoke inflation.

Probal Sen, analyst at ICICI Securities, mentioned: “Price hikes of Rs 13-14/kg will be needed for city-gas and Rs 12-13/scm for domestic segment in April, assuming no change happens in spot LNG blending from current levels of 15-18%. If this (blending) reduces to levels of 3-5%, net price increase will be limited to S 4-5/kg.”

“Higher domestic gas prices will lead to higher input prices for all consuming industries like city gas players etc. But all the companies have pricing power and will pass the prices to end consumers, thereby maintaining margins,” mentioned Avishek Datta, analysis analyst at Prabhudas Lilladher. He expects APM gas price (GCV) to be round $6/mmBtu for H1FY22.

Deepak Mahurkar, associate at PwC, mentioned: “The demand for gas from some global hubs has gone to record highs. A softening of prices is not in sight. Almost all sectors are looking at passing on the price rise to customers. It will be interesting to watch how the global suppliers of gas and crude will fund renewables using the unusual earnings. Since India is significantly import-dependent for gas, the benefits aren’t for India, except to the domestic producers (who have a relatively small share in the market), if their prices are indexed.”

Swarnendu Bhushan, oil & gas analyst at Motilal Oswal Financial Services, mentioned: “CNG prices could go up by 4 per kg with every dollar increase in price of APM gas. It would roughly translate to Rs 12-16 per kg increase due to a $4 hike in APM gas price from April. Piped natural gas prices could also see an increase by3/scm with every dollar increase in APM price, which would mean an increase of Rs 12/scm”.

Currently, spot LNG costs are ruling at $35/mmBtu in contrast to $15/mmBtu a year in the past. “If the price of crude drops to $80/bbl then long term crude linked contracts will fall to $11-12/mmBtu from $15 at present, while spot will come below $12/mmBtu,” Bhushan added.

Quoting two unidentified sources, PTI reported that the government-dictated price for gas produced from fields given to state-owned explorer ONGC on nomination foundation (APM gas) is probably going to rise to $5.93/mmBtu from present $2.9/mmBtu. Simultaneously, troublesome fields like those in Reliance-BP operated D6 block in KG basin, are seemingly to get $9.9-10.1 price in contrast to the present rate of $6.13, the company added.

Sharing his expectation that APM gas price can be $6-6.5/mmbtu for H1FY23, Prashant Vashisht, VP & co-head-corporate scores at Icra mentioned: “For every $1/mmBtu increase in domestic gas prices, assuming that the CGD players maintain their current absolute contribution margins in /kg and/scm terms, they could increase CNG and PNG (domestic) prices by Rs 4.5-4.7/kg and Rs 2.5-2.7/scm, respectively in Delhi. Generally, we have seen costs being passed on by CGD entities. However, there may be a lag in the pass-through due to graded increase in prices which would impact margins.”

As regards the fertiliser sector, which depends on home gas for almost 32% of its gas requirement whereas meeting the steadiness requirement via R-LNG imports, Icra estimates that for each $1/mmBtu rise in the ‘pooled gas price,’ the subsidy requirement for the urea sector might rise by round Rs 4,500-5,000 crore.

While spot LNG costs are excessive and unstable at current, the price of long-term LNG that Petronet procures would enhance by $1.3/mmBtu for each $10/bbl enhance in dated Brent costs (3 month common) at terminals (after cost of excise responsibility), Vashisht famous.

Jefferies wrote: While passing via $9.2 APM gas price won’t be straightforward, we predict there may be sufficient headroom for metropolis gas distribution corporations to elevate costs, with economics aided by

increased crude seemingly reflecting in increased petrol and diesel costs. A potential govt intervention might present extra aid. Even if (the price-setting components suggests $6.6 (GCV) APM price in April, one-off govt intervention (with out offering a ceiling) might restrict APM gas to probably $5.5 (GCV)/ $ 6.1 (NCV), which might scale back the ask-rate for CGD corporations considerably.”

Of the overall gas consumed in the nation, nearly 50% is imported LNG.
India’s annual home consumption of urea is 32-35 million tonne (MT) and 30% of that is imported (though imports are anticipated to average in FY23 with commissioning of three new crops).

DAP requirement varies from 8-10 MT with almost 50% of the amount being imported. However, the oblique import dependence in case of DAP/NPK can be to the tune of 95-98% on condition that the inputs used are imported. The nation’s MOP requirement is round 3.5 mt and it’s completely imported.

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