India’s gas price hike positive for upstream producers: Fitch

  • The gas price increase will hit fertilizer sector's profitability by increasing working-capital requirements

Kalpana Pathak
First Published5 Oct 2021
Higher gas prices will increase the input cost for key end-consumer sectors, to the extent the price hike is passed on. Photo: Reuters 
Higher gas prices will increase the input cost for key end-consumer sectors, to the extent the price hike is passed on. Photo: Reuters ;

The 62% increase in natural gas prices by the government will boost profitability of Indian upstream companies and support their investment spending, says Fitch Ratings.

The price for gas from fields that were assigned by the state to oil companies, mainly state-owned Oil and Natural Gas Corporation Limited (ONGC) and Oil India Limited’s (OIL), increased to $2.90 per million British thermal units (mmBtu) for October 2021-March 2022 from $1.79 per mmBtu in April 2021-September 2021.

The government also increased the price ceiling for gas produced from deepwater and other difficult fields to $6.13 per mmBtu from $3.62 per mmBtu. Reliance Industries Ltd's gas production from KG basin will benefit from the higher price ceiling, but the impact on RIL’s financial profile is minimal as gas makes a limited contribution to its revenue.

Higher gas prices will increase the input cost for key end-consumer sectors, to the extent the price hike is passed on. Domestically produced gas is supplied on a priority basis to certain sectors, with 30% of it consumed by power producers, around 27% by the fertilizer sector and 19% by city gas distributors in FY21.

The gas price increase will hit fertilizer sector's profitability by increasing working-capital requirements. Auto gas fuel’s price will remain competitive against liquid fuels, albeit with a reduced differential, notwithstanding the gas price increase. This is because liquid auto fuel prices have also been climbing in recent months, given the rise in crude oil prices. The cost of power generated by gas-based power plants will increase, which will further decrease their utilization.

"We expect OIL’s FY22 leverage to be 1.9x, comfortably within our negative rating threshold, but leverage could come close to our negative sensitivity of 3.0x in FY23, as its capex intensity increases. Natural gas accounted for about 13% of OIL’s upstream revenue in FY21," said Fitch Ratings.

Catch all the Industry News, Banking News and Updates on Live Mint. Download The Mint News App to get Daily Market Updates.MoreLess
HomeIndustryEnergyIndia’s gas price hike positive for upstream producers: Fitch

Most Active Stocks

Tata Steel

179.85
10:29 AM | 21 JUN 2024
-2.5 (-1.37%)

Bharat Electronics

305.00
10:27 AM | 21 JUN 2024
-7.05 (-2.26%)

ITC

419.60
10:28 AM | 21 JUN 2024
-3.75 (-0.89%)

Vedanta

469.95
10:29 AM | 21 JUN 2024
-0.3 (-0.06%)
More Active Stocks

Market Snapshot

  • Top Gainers
  • Top Losers
  • 52 Week High

Railtel Corporation Of India

476.20
10:27 AM | 21 JUN 2024
41.8 (9.62%)

Titagarh Rail Systems

1,584.25
10:29 AM | 21 JUN 2024
89.05 (5.96%)

Rail Vikas Nigam

409.70
10:28 AM | 21 JUN 2024
22.35 (5.77%)

Honasa Consumer

449.85
10:26 AM | 21 JUN 2024
23.5 (5.51%)
More from Top Gainers

Recommended For You

    More Recommendations

    Gold Prices

    • 24K
    • 22K
    Bangalore
    73,533.00538.00
    Chennai
    74,110.00757.00
    Delhi
    73,894.00684.00
    Kolkata
    73,533.00538.00

    Fuel Price

    • Petrol
    • Diesel
    Bangalore
    102.86/L0.00
    Chennai
    100.98/L0.23
    Kolkata
    103.94/L0.00
    New Delhi
    94.72/L0.00
    OPEN IN APP
    HomeMarketsloanPremiumGet App