Oil & Gas: HPHT gas prices marginally lowered

1 Apr 2024 , 11:14 AM

As per PPAC’s notification, HPHT gas field prices for H1FY25 stand at US$9.87/mmbtu (down from US$9.96/mmbtu). APM gas price remains unchanged at US$6.5/mmbtu for another 4 quarters (Kirit Parekh committee recommendation). RIL sells all of its gas through Brent and JKM linked prices, capped at HPHT; it has recently hiked the slope of its Brent-linked gas contracts from 8% to 12.67%, for which there is ~2% EPS upgrades for FY25/FY26ii. ONGC, OIL etc., see no impact; CGDs also remain unaffected.

PPAC holds gas prices:

For H1FY25, the gas produced from the difficult, deep-water fields (HPHT) will fetch a price of US$9.87/mmbtu — down 1% (from US$9.96/mmbtu earlier). APM gas prices stay unchanged and capped at US$6.5/mmbtu, as per the Kirit Parekh (KP) Committee recommendation. India consumes ~181mmscmd gas — of which 82mmscmd is imported, while 99mmscmd is produced domestically. Production from the non APM fields is 35mmscmd (mainly RIL); the balance (APM) gas is produced by ONGC/OIL etc.

RIL’s realisations now align with HPHT prices:

In M9FY24, RIL sold ~26mmscmd gas from its deep-water fields through oil and JKM linked contracts; all subject to the capping at HPHT rates. However, due to some old contracts linked to 8.4% Brent, RIL realised less than the benchmark prices. These old contracts were replaced by new ones linked to 12.67% Brent; which should result in a 5-6% increase in RIL’s actual realisations despite the price cut and should now match the capped HPHT prices.

Players await pricing freedom:

Indian government aims to increase the share of natural gas in the overall energy basket, from 7% to 15% by 2030. To attract investments in the sector and ensure reasonable returns, E&P players are seeking pricing freedom. However, the government has not yet decided on the Kirit Parikh Committee’s suggestion to deregulate prices of HPHT/APM gas CY26/CY27 respectively. Until a decision is reached, the prevailing gas pricing formula will persist, prompting questions on how the government will incentivise E&P players to bolster domestic production, despite existing price caps.