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Natural gas price cut to hurt ONGC earnings by Rs 1,460 crore: Moody’s
Posted on 4th October 2019
The recent reduction of gas prices by the central government would lead to state-owned Oil and Natural Gas Corporation (ONGC) lose Rs 1,460 crore revenue from its gas business, rating agency Moody’s said on Thursday. The decline is equal to 0.3% of ONGC’s expected consolidated revenue and around 2% of consolidated earnings before interest, tax, depreciation and amortisation for FY20.

On September 30, the government cut domestic natural gas prices by 12.5% to $3.23 per million British thermal units (mmBtu) — the first reduction in gas prices in the country since April 2017. Ceiling price for gas to be produced from difficult fields has also been cut 9.5% to $8.43/mmBtu. Terming the price reductions as “credit negative” for ONGC, Moody’s, however, said that it “will have a limited effect on ONGC’s metrics for FY20” since its gas business is small compared with its total upstream operations. In FY19, the gas business contributed 17% revenue to ONGC’s upstream business.

The price cut “could potentially discourage upstream companies to take up domestic gas exploration which is already down by 1% y-o-y in the current financial year (April-August),” Care Ratings had recently said. ONGC accounts for 75% of the country’s crude oil and natural gas production by volume and 17% of domestic refining capacity. It produced 1.3 million barrels of oil equivalent of oil and gas per day in FY19. The central government owns more than 64% stake in the company.

However, natural gas end-users such as urea and petrochemical manufacturers are seen to benefit from the price cut. City gas distribution entities, which are a priority sector under the gas utilisation policy, would also gain from decreasing prices.

Following the government announcement, Indraprastha Gas reduced the selling prices of compressed natural gas by Rs 1.90 per kg in Delhi and Rs 2.15 per kg in Noida, Greater Noida and Ghaziabad.

Related Companies: Oil and Natural Gas Corporation Limited (ONGC)   

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