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Business News/ Money / Personal-finance/  Gujarat Gas’ gross spreads to improve
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Gujarat Gas’ gross spreads to improve

Gujarat Gas’ gross spreads to improve


Gujarat Gas Co. Ltd has hiked the base price of gas that it sells to its industrial customers by 16% to Rs13.36 per standard cu. m (scm). Industrial customers account for 83% of the company’s 3.5 million standard cu. m per day (mscmd) gas volumes. The remaining 17% comes from CNG (compressed natural gas), domestic and commercial segments. The price hike is effective 1 December. Industrial customers are supplied gas from various sources, including long-term contracts of gas from the domestic market, spot RLNG (regasified liquefied natural gas) and 0.5 mscmd of RLNG procured from BG India Energy Solutions Pvt. Ltd for a period of 39 months starting October.

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To arrive at the base price, Gujarat Gas has taken into consideration the comparatively high cost of the BG RLNG, so that the average hike allows it to cover its costs in the overall industrial customer segment, excluding spot LNG. Gujarat Gas intends to pass on the fluctuations in spot prices, which account for 5% of the company’s total volumes. According to a note from Angel Broking Ltd, the price hike would boost Gujarat Gas’ gross gas spread and even after the price hike, its pricing is cheaper against its peers such as Gujarat State Petroleum Corp. Ltd and Adani Gas Ltd in the same region. Gross gas spread is the difference between its selling price of gas, and the cost of procuring and supplying it.

This is good news for the firm, which saw its gross gas spread fall to Rs3.70 per scm in the September quarter on the back of higher APM (administered price mechanism; or government fixed) gas price and the higher share of LNG in its gas sourcing portfolio. The share of LNG was higher in the September quarter because of lower production from the Panna-Mukta and Tapti (PMT) fields.

Some analysts maintain that the September quarter fall in gas spreads was a one-off because margins have been higher in the first half of the calendar year. Gujarat Gas follows January-December calendar year.

In the March quarter, gross gas spread stood at Rs4.30 per scm and in the subsequent quarter it slipped to Rs4 per scm.

The company’s stock has outperformed the BSE-500 index since the beginning of this fiscal and risen by 40% compared with the 13% increase in the index. Gross gas spreads should be better in the December quarter, as the impact of one month of higher prices will be felt; the full impact will be visible in future quarters. Further, normalization of supplies from the PMT fields in the current quarter would augur well and reduce the share of LNG. Though these will mean Gujarat Gas’ performance will improve, these positives appear to have been factored into its share price already.

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Published: 02 Dec 2010, 10:32 PM IST
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