Gas price hike uncertainty to upset investment 

THE uncertainty created by Election Commission’s postponement of gas price hike till the polls are over could not only hamper the investment plans of exploration and production (E&P) companies, but also disrupt the country’s fuel matrix, jacking up costs of consumer industries like power and fertiliser.
State-run explorer ONGC’s output expansion plans are contingent on how vigorously it can pursue the cost-intensive deep water blocks. If the gas prices are remunerative, * Oil & Natural Gas Corpn , which already shoulders a heavy burden of the subsidies on petroleum products, may have to re-draw its E&P road map. That, coupled with private players like Reliance Industries and BP turning cautious, could cost the country dear — in terms of
If the Rangarajan formula approved by the government in June 2013 and pricing guidelines issued in January 2014 were to be implemented, gas price price would have nearly doubled from $4.2/mBtu at present. The revised price was to be effective from April 1.
costlier fertilisers and power and potential ONGC was expecting an addition of R2,400 crore annually in its profit after tax (PAT) for every one dollar increase in gas price. Chairman and managing director Dinesh K Sarraf told FE that he was still optimistic and expressed the hope that the new gas pricing regime would be in place not later than three months from now. unsustainable strain on government finances
Sarraf’s predecessor Sudhir Vasudeva, who retired on February 28, has drawn up a ‘Perspective Plan 2030’ to invest R11 lakh-crore over the next 18 years to more
According to the country’s largest explorer, even a higher gas price of about $8/million British thermal units (mBtu) is not enough to monetise more than dozen hydrocarbon finds across its fields. For example, ONGC found two gas discoveries in the Mahanadi Basin. But it can take out gas from them only when the price is at least $11/mBtu that accounts to 10 per cent return on equity.

pratima kumari
pgdm- 1st yr
source: the financial express