Oil and gas stocks were trading higher on expectations that the Cabinet Committee on Economic Affairs (CCEA) would take a decision on raising gas prices today, with ONGC and Reliance making the biggest gains.
But to what extent the CCEA would go with the recommendations of the Oil Ministry in the context of the controversy it generated and its likely impact on key users, particularly fertiliser and power utilities, will be watched with interest.
Expectations of hike in gas prices have led to a sharp uptick on the NSE Energy index which gained 133 points.
The major gainers were ONGC which was up by Rs 9.85 to Rs 318.30, Reliance which vaulted by Rs 18.85 to Rs 822.45, Cairn that was up by Rs 5.25 to Rs 279.35 and GAIL that gained Rs 4.95 to Rs 301.40. While seven of the energy index stocks were up, three were down marginally namely BPCL, NTPC and RPower.
The Petroleum Ministry has proposed a price of $6.77/mmBtu for domestically produced gas. The rates will jump to $8.55 in April 2014 when Reliance Industries is entitled for revision in price for its eastern offshore KG-D6 gas.
The Power Ministry has said that any price beyond $5/mmBtu is unviable for the sector. The Fertiliser Ministry had also expressed its reservations.
Finance Minister P. Chidambaram had listed gas pricing as one of the issues likely to be resolved before June-end.
Currently, domestically produced gas is sold in the range of $4.2-$5.75/mmBtu, spot (imported gas) at $13-$14/mmBtu and long-term contract at $11.5/mmBtu. These prices are excluding local taxes and add on’s like marketing margins, transportation tariff.
It was reported earlier that Oil Minister M. Veerappa Moily had proposed increasing the gas prices to $6.775 per million British thermal unit (mBtu) from the current $4.2 per mBtu.
But this would have a significant impact on power generation and fertiliser manufacturing cost, leading to a steep increase in prices for the end-users. There is speculation that either the increase ultimately approved would be lesser or the issue may be left to a Cabinet panel for a decision.
But the proposal has raised the ire of the Left parties which have contended that such a hike would lead to a “windfall profit’’ for Reliance Industries. While PSUs like ONGC and Oil India Ltd would benefit immediately from any raise in gas prices, for others like RIL, the benefit would accrue from the next financial year.