PTI
New Delhi
India should benchmark its natural gas prices to similar gas-deficient nations instead of using rates prevalent in gas-surplus geographies like the US and Canada, says Standard & Poor's Ratings Services.
Using rates in gas-surplus nations, domestic natural gas prices earlier this week were cut by 18 per cent to $4.24 per million British thermal unit, a rate which S&P said will "discourage oil exploration and production (E&P) companies from committing new capital expenditure (capex)".
"The formula for pricing domestic gas considers prices in gas-surplus geographies such as the US and Canada, which have developed gas transportation infrastructure."
"Given India's gas production deficit and emerging gas transport infrastructure, comparing prices in similar geographies will be more relevant, in our opinion," it said in statement.
"We believe the government's plan to stimulate private sector participation and bring in transparency in gas pricing by introducing formula-driven gas pricing is well intended. However falling hydrocarbon prices over the past one year have brought in uncertainty over the viability of exploration projects," it said.
Low gas prices could materially reduce profitability of state-owned ONGC's planned Rs 40,000 crore investment in developing its KG-basin gas discoveries.
"Investment by private sector oil and gas companies in India has been small and their capex commitments are likely to be uncertain because of the price revision," it added.
The cut "reduces the profitability of the gas produced from the existing fields and adversely impacts the viability of new exploration and development projects", it said.
With domestic gas price trending down, response to the forthcoming auction of exploration blocks could get "impacted with companies factoring in gas prices that could fall to 2010 levels ($4.2 per mmBtu) even as there has been run up in costs of manpower, oil fields services, contractors etc.," ICRA said.
Separately, India Ratings and Research (Ind-Ra) said the benefit from reduced gas price will be partly offset by the near 6 per cent rupee depreciation.
It said domestic gas producers - Oil India Ltd and Oil and Natural Gas Corporation Ltd could face a revenue decline of Rs 120-130 crore and Rs 1,080-1,150 crore respectively, on gas sales during second half of 2015-16 fiscal.
