If the Rangarajan Committee?s proposal to price domestic gas on the basis of weighted average price of natural gas from North America, Europe and Japan, and the well-head gas price of LNG imports into India, is implemented, companies like ONGC, OIL and Reliance Industries will benefit significantly. But if the natural gas price goes above $8/mmBtu, which the committee has estimated, it will affect consumers in the power and fertiliser sectors.
A Kotak Institutional Equities research by Sanjeev Prasad, Tarun Lakhotia and Tarun Kumar estimates a 6% increase in average consumer price of power and a 2% increase in fiscal deficit from higher fertiliser subsides. However, there will be significant improvements in the profitability of the ONGC and OIL if the government hikes the price of natural gas produced from nominated fields to $6-8/mmBtu from $4.2/mmBtu currently. Also, the royalty paid on natural gas produced from nominated fields will increase, which may curtail the benefit for these upstream companies. For Reliance Industries, the decline in gas production from KG D-6 block would offset the positive impact of higher gas prices.
