Billionaire Ambani, ONGC Face 18% Cut in India Gas Price

  • Survey shows October-March price below $2.5 per mmBtu likely
  • That would hurt explorers but boost fertilizer and power firms

India will probably cut the price of natural gas by about 18 percent in a setback for explorers, a survey by Bloomberg News shows.

The government-set price will track a global decline and fall to less than $2.5 per million British thermal units for October through March from $3.06 currently, according to the average of 12 industry estimates. India reviews the rate half-yearly, using a formula capturing international trends. The announcement is due this week.

Such a reduction would take the price to less than half the $5.05 per million British thermal units the government set when it first rolled out the formula in 2014. That could put pressure on the margins of explorers such as Oil & Natural Gas Corp. and billionaire Mukesh Ambani’s Reliance Industries Ltd., while benefiting users including fertilizer companies and power generators.

“We’re highly concerned about the fall in prices,” said Ashu Sagar, the secretary general at the Association of Oil & Gas Operators, whose members include the biggest explorers and gas producers. “The formula now doesn’t offer any floor.” 

India has struggled to follow the U.S. and Europe in giving natural gas a greater role for electricity production in place of polluting coal power. Lower prices threaten to hamper the investment needed to turn around flagging output of the fuel in Asia’s No. 3 economy. 

“The government needs to encourage domestic production by ensuring a fair minimum price,” said Sachin Mehta, an analyst at Centrum Broking Pvt. in Mumbai.

A higher tariff of about $6.6 per million British thermal units is available for gas recovered from some deep-sea fields, under a policy change from March that prompted companies to revive plans to tap difficult deposits. That price is also due to be revised from Oct. 1.

“Gas prices are determined by an approved formula linked to some international market rates -- if prices of those markets have fallen, it will reflect on domestic prices,” Oil Secretary Kapil Dev Tripathi said Sept. 21.

Oil ministry spokesman Y. K. Baweja declined to comment. Tushar Pania, a spokesman for Reliance Industries, didn’t respond to an e-mail seeking comment.

State-run ONGC, the biggest explorer in India, estimates that each dollar decrease in gas prices curtails annual revenue by 42 billion rupees ($630 million) and profit by 24 billion rupees.

Too Far

ONGC Chairman Dinesh Kumar Sarraf said the government may step in if parts of the exploration industry become unviable because the natural gas price falls too far.

“We’re fully confident that if certain things are not viable, the government would help the industry and us,” Sarraf said in an interview, citing the step earlier this year to allow higher prices for deep-sea fields as an example.

ONGC shares declined as much as 1.3 percent to 246.35 rupees in Mumbai on Tuesday and traded at 247.45 rupees as of 11:45 a.m. local time. Reliance gained as much as 1.7 percent to 1,125.95 rupees.

The current gas-price formula is based on U.S., Canadian, U.K. and Russian rates. The industry association’s Sagar said the government needs to reassess the formula as it’s based on prices from countries where there is an oversupply of gas, unlike India.

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