'Lack of clarity on premium for new deepsea gas finds'

The 46 per cent rise in natural gas prices will help improve investor sentiment but lack of clarity on the premium government will pay for new discoveries in deepsea is a dampener, says a report.
The Cabinet Committee on Economic Affairs had on Saturday approved a 46 per cent hike in natural gas prices to USD 5.61 per million British thermal unit (on gross calorific value basis) to spur investments in now stagnant upstream oil and gas exploration.
The new formula will comes into effect from November 1 and rates will be revised every half year, the next revision being on April 1.

"The price hike is lower than the demand of the incumbents who wanted a steeper hike in gas prices," ICRA said in a report here.
Government will provide a premium on gas price for all future discoveries in ultra deepwater, deepwater and high-pressure-high-temperature offshore blocks, the quantum of which is to be determined on a case to case basis.
"With this price announcement, ICRA expects the investor sentiments in the domestic upstream sector to improve; nonetheless the lack of clarity on the quantum of price premium for gas produced from complex offshore blocks is a dampener, especially considering that most of the domestic prospects fall in this category," it said.

The increase in gas prices is expected to improve the viability of a modest proportion of gas resources though material upside to domestic gas production is likely only after 4-5 years due to approval issues and long gestation period for development of offshore fields.

On the impact on end consumers, ICRA said the impact on the fertilizer sector is expected to be marginally negative as the higher gas price would increase the subsidy.
"The impact on the Power sector is expected to be negative on account of gas becoming less competitive as against domestic coal," it said.
Profitability of companies operating on either merchant route or on fixed tariff under short term power purchase agreements (PPAs) would be adversely impacted.

On the impact of price rise on CNG and piped cooking gas (PNG), ICRA said while the CNG segment has the ability to absorb the price increase, the PNG domestic segment's competitiveness is set to reduce further against the heavily subsidised LPG (domestic).
"Notwithstanding the negative impact on fertilisers, power and CGD sectors, they will be benefited through increased availability of gas, if the supply situation improves as anticipated, as they would continue to enjoy high priority for gas allocation," the report added.