Fertilizer, power and steel companies to benefit
here is good news in store for homemakers who use piped natural gas (PNG) for cooking and motorists who use compressed natural gas (CNG) with prices of PNG and CNG likely to come down by Re 1 to Rs 1.5 per kg with effect from April 1.
Thanks to the third consecutive reduction in domestically produced gas prices by 20 per cent to $3.06/mmbtu, natural gas distribution firms such as Mahanagar Gas (MGL) and Indraprastha Gas are planning to reduce the cost of PNG and CNG to pass on the benefit of falling gas prices to consumers.
The government’s 20 per cent cut in domestic gas prices will translate into a reduction of Rs 0.5/scm (standard cubic metre to Rs 1.5/scm in PNG prices for domestic customers and a Rs 0.8/kg-Rs 1.5/kg cut in CNG prices, according to India Ratings and Research (Ind-Ra) estimates. Lower prices are seen to directly impact the revenues of domestic gas producers by Rs 3,000-3,200 crore during the first half of FY17.
An MGL spokesperson was not immediately available for comment but a source said the company was likely to announce the reduction in PNG and CNG prices on Friday.
The revised price means city gas distribution (CGD) entities could incur a Rs 1.9-2 lower cost per SCM on gas procurement. Over October 2015-March 2016, the price of diesel increased by 8 per cent while CNG remained unchanged, thus increasing the fuel competitiveness of CNG.
Considering that the pricing power for CNG and PNG lies with the CGD entities, the quantum of benefits passed may vary across consumers and geographies.
A Re 1/kg cut in CNG prices will make CNG 47 per cent more competitive than diesel in Delhi, compared with the current 41 per cent.
As CNG contributes more than 50 per cent of total volume of gas sold by the CGD entities, higher competitiveness will help volumes thereby compensating for loss in revenues from the price cut to some extent.
The third consecutive domestic gas price reduction since the implementation of the domestic gas pricing formula is driven by the decline in average gas prices at the reference hubs over January-December 2015.
The price of gas has declined by around 39 per cent since the implementation of the gas pricing formula in October 2014.
The previous downward price revision was to $3.82/mmbtu from $4.66/mmbtu on October 1, 2015.
The move will also benefit fertilizer, power and steel companies who rely heavily on natural gas. It will also lower their working capital requirements.
[Source:- The Hindu]