Reliance to gain most from gas price hike

Conservative estimates have put revenue gains of Reliance Industries, India's largest energy explorer and producer, from the doubling of gas prices at around Rs1,770-2,950 crore ($300-500 million), although the actual gains to the private sector oil and gas giant could be manifold once it starts realising the full potential of the KG-D6 gas block, analysts say.

The UPA government has decided to implement the recommendations of Rangarajan Committee and increase natural gas prices to $8.4-8.5 per million Brirish themal unit (mmBtu), beginning 1 April next year, from the current $4.2 per mmBtu - the price that gas producers are currently allowed to charge under the New Exploration Licensing Policy (NELP).

The price hike is applicable for both NELP as well as nomination blocks.

State-run explorer Oil and Natural Gas Corp (ONGC), on the other hand, expects to earn an additional Rs8,000 crore ($1.34 billion) in profits annually on account of the increase in gas prices.

The Cabinet Committee on Economic Affairs (CCEA), which approved the doubling of natural gas price, however, said while the price will benefit companies like ONGC, Oil India and GAIL also, the biggest beneficiary will be Reliance Industries.

Analysts also expect the gas price hike to help make some of Reliance's discoveries commercial and accelerate approvals for developing nearly 4 TCF (trillion cubic feet) of discoveries. This should also incentivise Reliance to carry production improvement programmes in its producing fields in KG-D6, it added.

Also, unlike ONGC or OIL that are burdened with part of the government's subsidy bill, Reliance is not obliged to share profits with the government.

The price hike may also come as a blessing in disguise for GAIL once it is exempted from the subsidy burden as it would have to pay double the price for domestically produces gas.