Begining October 1, the domestic gas prices are expected to fall below the $2 per million British thermal units (mmBtu), the CARE ratings said on Thursday. The ratings agency expects the government to cut the domestic gas price by 17.7 percent to $1.97 mmBtu for the second half of the financial year 2020-2021 starting October 1. The domestic gas price for the first half of FY21 was fixed at $2.39 per mmBtu which ends on September 30.

As per the last domestic gas policy of 2014, which decided to revise prices every six months, the expected price of domestic gas will hit below $2/mmBtu for the first time, making it the lowest gas price. The fall in domestic gas prices is expected on account of a cut in global prices due to increased production and lower demand amid coronavirus.

While the fall in domestic gas prices may benefit end customers such as fertilisers, City Gas Distribution and households, it will lead to lower realisations and squeeze profitabiity for the upstream companies like ONGC, Oil India.

“Domestic gas exploration and production companies ONGC, Oil India have been impacted during the first quarter of FY21 during the pandemic, as demand for gas has been lower. Further fall in domestic gas prices will certainly add to their woes. Upstream companies were earlier able to absorb the loss from the natural gas segment, from the crude oil sales but with the sharp fall in crude prices during March this year that advantage is also not available, at least for the current financial year” said Nitesh Ranjan, Senior Manager, CARE Ratings.

The rating agency expects the credit profile of government-owned upstream companies to remain intact as it has easy access to capital and strategic importance from the view of oil and gas policy.

The positive impact of the cut in prices will be on end-users like fertiliser, City Gas Distribution amongst others as their input cost will become cheaper. It will also help expand the existing natural gas market and help increase the share of gas in the energy mix.

Natural Gas constitutes only about 6 percent currently in the energy mix and India plans to increase the share of gas to 15 percent by 2022.

First Published:Sept 24, 2020 9:14 PM IST