Domestic Gas: HPHT price cut, APM not!

3 Oct 2023 , 10:34 AM

For H2FY24, government has cut the price of gas produced from deepwater fields by 18% to US$9.96/mmbtu; at US$6.5/mmbtu (95% production of ONGC/OIL), APM gas prices are unchanged. RIL sells all of gas through Brent and JKM linked prices capped at HPHT; its realisations will be down by ~10%, leading to 3-4% cut on FY24/25 EPS. It remains to be seen if CGDs (IGL, MGL, GGAS etc) retain such benefit or cut CNG / domestic PNG prices. 

HPHT gas price cut; APM unchanged: 

In H2FY24, the gas produced from the difficult, deep water fields (HPHT) will earn a price of US$9.96/mmbtu — down 18%. APM gas prices are unchanged at US$6.5/mmbtu, as per the Kirit Parekh (KP) committee recommendation. India consumes ~175mmscmd gas — of which 73mmscmd is imported, while 102mmscmd is produced domestically. Production from the nonAPM fields is 40mmscmd (mainly RIL), while the balance (APM) gas is produced by ONGC/OIL etc.

RIL earns < HPHT gas: 

In Q1FY24, RIL sold 21mmscmd gas from its deepwater fields through oil and JKM linked contracts; all such realisations are capped at HPHT, for which RIL realised US$10.8/mmbtu (GCV) for its gas (less than the benchmark). Through FY24-25 RIL expects to sell additional 8-9mmscmd gas through JKM linked contracts. And to that extent, while HPHT pricing is cut by 18%, actual hit to RIL’s realisations is ~10%, which leads to 3-4% EPS cut on FY24/FY25. RIL has contracted gas with CGDs, GAIL, OMCs etc; it remains to be seen if CGDs will pass on the benefit of lower gas prices to end-consumers. 

Pricing freedom key for E&P players: 

The Indian govt targets to enhance the share of NG in the overall energy basket from 7% to 15% by 2030. For attracting investments in challenging fields, earn reasonable returns, the E&P players expect pricing freedom. From 2026/27, govt has proposed to eliminate all pricing caps on deep-water / APM fields respectively. Thus, India’s domestic gas production is set to increase to 111mmscmd by 2026 (~10% increase). And to that extent, pricing freedom plays a crucial role in establishing well-functioning gas markets in India; this has been acknowledged by the KP committee.